Bernanke: We saved world
We saved the world from disaster, Bernanke says
Without strong action by central banks, recession would have been much worse
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) - The global economy is now beginning to emerge from its worst crisis in generations, but the downturn might have been much worse if central banks hadn't acted so forcefully last fall, Federal Reserve Chairman Ben Bernanke said Friday.
In a speech at the Kansas City Fed's annual retreat in Jackson Hole, Wyo., Bernanke summarized a hellish year and explained modestly how he and his central bank colleagues saved the world from a bigger disaster. Read his full remarks.
Reuters
U.S. Federal Reserve Chairman Ben Bernanke's image is projected behind him as he addresses the HOPE Global Financial Literacy Summit at a community center in Washington, June 17, 2009. REUTERS/Jonathan Ernst (UNITED STATES POLITICS BUSINESS)
"The world has been through the most severe financial crisis since the Great Depression," he said. "As severe as the economic impact has been, however, the outcome could have been decidedly worse."
If the Fed, other central banks and other government leaders hadn't acted in a coordinated and aggressive way in September and October of 2008, "the resulting global downturn could have been extraordinarily deep and protracted," Bernanke said.
Bernanke spoke to a selected group of top policymakers and economists. His speech, however, was aimed at a much wider audience: The president, the Congress and a public that's angry and confused. Bernanke's term as chairman of the Fed runs out in January, and the financial world is watching to see if President Barack Obama reappoints Bernanke or hands to job to someone else.
Past financial panics have exacted an "enormous toll in both human and economic terms," Bernanke said. "In this episode, by contrast, policymakers in the United States and around the globe responded with speed and force to arrest a rapidly deteriorating and dangerous situation."
The policy response "averted the imminent collapse of the global financial system, an outcome that seemed all too possible to the finance ministers and central bankers."
Bernanke's speech emphasized the policy response after the crisis erupted last September with the collapse of Lehman Bros. and the failure of other financial institutions, including Fannie Mae, Freddie Mac, AIG, Merrill Lynch and Wachovia.
His history of the crisis essentially begins in September 2008, and ignores the actions and decisions that led to disaster. Of the origins of the crisis, Bernanke remarked only that, until just before the crisis, "there was little to suggest that market participants saw the financial situation as about to take a sharp turn for the worse."
Bernanke made almost no comments about the future course of the U.S. or global economies, other than repeating phrases from the latest communique from the Federal Open Market Committee that the economy seems to be leveling out. He cautioned that any recovery is likely to be gradual at first, with high unemployment.
Use of some of the Fed's liquidity programs has declined, he said, a "clear market signal that liquidity pressures are easing and market conditions are normalizing."
He said nothing about how the Fed would unwind its support for the banking system. That day seems to be in the distant future, however. "Although we have avoided the worst, difficult challenges still lie ahead,' including securing a sustainable economic recovery and rebuilding the institutional framework to make sure a similar crisis can be averted.