And Bernanke, Too: His Testimony on the Economy

We are hopeful that the very sharp decline we saw even last fall and early this year will moderate considerably in the near term and we'll see positive growth by the end of the year.

--Fed Chairman Ben Bernanke's testimony to the Joint Economic Committee of Congress (5.5.09), Reuters

Only a couple days after Warren Buffet's optimistic comments, Fed Chairman Ben Bernanke's testimony to Congress followed in the same optimistic spirit, but with the same cautionary, qualifying comments, underestandably. But he also addressed more economic topics and covered the ground in greater depth:

BERNANKE ON STATE OF FINANCIAL SYSTEM

I think we're in far better shape today than we were in September and October. While I know there are many critics of the TARP ... I do believe that availability of that capital helped us dodge what would have been a truly cataclysmic collapse of the global banking system, which would have had terrifically bad effects on the U.S. economy...

I think we've made a lot of progress. The financial markets are still fragile, we don't want to take anything for granted, but we have, I think, come a long way since last fall.

BERNANKE ON COMMITMENT TO PRICE STABILITY AND FED INDEPENDENCE

We are very committed to price stability. We have recently provided projections which suggest how we plan to approach medium-term price stability and given information on what we think inflation ought to be in the medium term. We firmly believe that we will be able to, after stimulating the economy to help it recover from this very difficult financial and economic situation we are in, come to a situation where we will emerge with sustainable growth and price stability. We are spending enormous amounts of time planning that and thinking about our exit strategy. I would also take great exception to the notion that the Fed has sacrificed its independence. The critical element of Fed independence is monetary policy and it has remained completely independent of all other government institutions. We have not sought advice or input on any aspects of monetary policy. That remains completely independent and it will remain independent.

BERNANKE ON CONFIDENCE IN U.S. DEBT

Senator, it's U.S. government debt bearing yields which are I think indicative of confidence. The relatively low yields that you see on 10-year and even 30-year debt suggests that investors in those securities, first of all appreciate the liquidity and safety of those securities, and secondly that they are confident that the U.S. will have low inflation and fiscal stability in the long term. Having said that, it's imperative on all of us as the policy-makers, particularly the Congress, which is responsible for fiscal policy, to make sure that we do achieve the necessary stabilization that will allow deficits to come down and allow us to deal with those issues. So, there's confidence in the market that we'll deal with those problems, and we must fulfill that confidence.

BERNANKE ON INFLATION RISKS

I just want to assure the American people that we are very focused, like a laser beam if I may, on this issue of making sure we have price stability in the medium term and that we are working very hard to make sure that, while on the one hand, it's very important for us to provide a lot of support for this economy right now because it needs support...at the same time we understand the necessity of winding this down in a orderly way at the appropriate moment so we will not have an inflation problem on the other side.

BERNANKE OF SAFETY OF FED LENDING

I'd first like to draw a very strong distinction between fiscal spending and the Fed's lending programs. Our lending programs are just that. They're lending programs, and with the exception of some of the things involved with AIG and that kind of thing, which is less than 5 percent of our balance sheet, the whole bulk of all those programs are very safe. They will be repaid with interest. We are making money for the Treasury.

There's a difference between spending money and lending it out and getting it back with interest.

And there is more commentary on the bank stress tests, and banks' sources of additional capital where needed, both private and government.

It's true that the economic environment is not good for most people right now. But I am comforted by the comments of Buffet and Bernanke, the world's best mind on the economy and business from an investment perspective and, perhaps, the most knowledgeable and experienced scholar and government economist in the world on the errors of the Great Depression and the many smaller-scale financial disasters and collapses in the years since then. No one knows more about how best to avoid those problems or manage through them. As difficult and uneven as the process has occasionally been in a volatile political environment, I can think of no one I'd rather have at the center of this management challenge than an independent Ben Bernanke.

The text of the Chairman's complete statement to the Joint Economic Committee can be read on the web site of the Board of Governers of the Federal Reserve System.

http://uk.reuters.com/article/americasRegulatoryNes/idUKN0546003320090505
http://federalreserve.gov/newsevents/testimony/bernanke20090505a.htm