- The Washington Times - Friday, August 21, 2009

Federal Reserve Chairman Ben S. Bernanke said Friday the U.S. economy appears to be stabilizing and economic growth is on the near horizon.

“Economic activity appears to be leveling out in the United States and abroad, and the prospects for a return to growth in the near term appear good,” Mr. Bernanke said.

However, the chairman said a recovery from the 21-month recession will likely start slowly, and high levels of unemployment will be a persistent problem.

Mr. Bernanke also said getting credit to flow more freely remains a “critical challenge” and that financial institutions still face “significant, additional losses.”

“Many businesses and households continue to experience considerable difficulty gaining access to credit,” he said.

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The chairman’s comments were similar to those he made earlier this month but were well received on Wall Street and at the White House.

The Dow Jones Industrial Average was up 127.19 points, to 9,477.24, in midday trading. The broader Standard & Poor’s 500-stock Index was up 14.96 points, to 1,022.33, and the tech-heavy Nasdaq was up 22.08 points, to 2,011.30.

“The president is pleased with the fact that it appears we’re making some progress in stabilizing that economy … but won’t be satisfied until we get the economy fully back on track and that we’re growing the economy in a way that creates jobs for the millions of Americans who continue to look for work and thus far can’t find it,” said White House press secretary Robert Gibbs.

Mr. Bernanke’s speech at the Federal Reserve’s annual meeting in Jackson Hole, Wyo., was largely a recap of how the U.S. economy plunged into a deep recession and what steps the bank and the Obama administration took to avert a depression.

“What we could not fully appreciate when we last gathered here was that the economic and policy environment was about to become vastly more difficult,” he said.

Mr. Bernanke said the flow of credit nearly stopped when the financial markets took a steep fall in September and October. Swift government intervention was needed to save mortgage giants Fannie Mae and Freddie Mac and prop up insurance giant American International Group Inc., he said.

But the Fed could not save Wall Street titan Lehman Brothers, which had inadequate collateral to secure a sufficiently large Federal Reserve loan, Mr. Bernanke said. Lehman’s September bankruptcy roiled financial markets worldwide.

“As the Federal Reserve cannot make an unsecured loan, and as the government as a whole lacked appropriate resolution authority or the ability to inject capital, the firm’s failure was, unfortunately, unavoidable,” the Fed chairman said.

The government’s major recovery tools were the $787 billion economic-stimulus package of tax cuts and government spending and a $700 billion financial bailout fund, which also helped U.S. auto manufacturers General Motors and Chrysler.

The Federal Reserve helped with emergency-lending programs and by drastically cutting short-term lending rates.

“Without these speedy and forceful actions, last October’s panic would likely have continued to intensify, more major firms would have failed and the entire global financial system would have been at serious risk,” Mr. Bernanke said.

The chairman said the turn of events was not without panic moments that prompted fast action from the Federal Reserve.

“The view that the financial crisis had elements of a classic panic, particularly during its most intense phases, has helped to motivate a number of the Federal Reserve’s policy actions,” said Mr. Bernanke, whose four-year term as Fed chairman expires early next year. The White House has not yet said whether he will be appointed to a second term.

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