Bernanke Tells Congress U.S. Economy Will Contract If Bailout Isn’t Passed

September 23, 2008 by · Leave a Comment
Filed under: Economic News 

Note to Chairman Bernanke: The economy is contracting regardless if we buy a bunch of bad assets from the banking system. Your solution is just to pump more dollars into the economy and create inflation to significantly reduce the spending power of the middle class which is part of the engine of our economy. Why reward institutions that made bad choices? You may think this is not rewarding them but you are setting a standard that no matter what you do we will provide a backstop to clean up your mess. You and I know what we don’t need is credit but more savings and a balanced budget so we can pay down our national debt.

News Piece:

Federal Reserve Chairman Ben S. Bernanke said the U.S. economy will shrink if markets don’t begin functioning normally, joining Treasury Secretary Henry Paulson in urging skeptical lawmakers to quickly pass a $700 billion rescue for financial institutions.

“I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,” Bernanke told the Senate Banking Committee today. “My interest is solely for the strength and recovery of the U.S. economy.”

Lawmakers have balked at rubber-stamping the Treasury plan to remove illiquid assets from the banking system, with Democrats demanding it support homeowners and limit executive pay, and Republicans resisting the plan’s reach and size.

Bernanke, putting aside his prepared remarks released earlier today, said the Treasury should buy illiquid assets at “hold-to-maturity” values rather than at discounted “fire- sale” prices. The suspension of “mark-to-market” accounting for assets, a change backed by “many banks,” would instead hurt investor confidence.

The comments are the first indication by both Bernanke and Paulson about the price Treasury is willing to pay financial institutions for toxic assets.

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The Fed and Treasury chiefs are trying to sway lawmakers such as Senator Sherrod Brown, a Democrat from Ohio, who said his constituents hold a “universally negative” opinion toward the proposal. Senator Jim Bunning, a Kentucky Republican, said the plan would “take Wall Street’s pain and spread it to the taxpayers.”

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