Bernanke says recession to be “long lasting” in U.S.

April 20, 2009 by · Leave a Comment
Filed under: Stock Market News 

I am glad that our private central bank’s Chairman has come to reality along with the rest of us.  In my opinion, this is really the soft-depression we should of had after the dot-com bubble and 9/11.  The reason is will be long lasting is because of the extent of the malinvestment that took place from 2001-2007.  

Because of our real estate asset bubble, much of the economy (upto 35% by some estimates) reallocated resource to areas that were not sustainable and now that it has finally dawned on people that not everyone can be a banker or real estate agent, it will take time for jobs to be created in areas that will have long-term and sustainable.

News (Bloomberg):

Federal Reserve Chairman Ben S. Bernanke said the collapse of U.S. lending will probably cause “long-lasting” damage to home prices, household wealth and borrowers’ credit scores.

“One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be,” the Fed chairman said today in a speech at the central bank’s community affairs conference in Washington. “The damage from this turn in the credit cycle — in terms of lost wealth, lost homes, and blemished credit histories — is likely to be long-lasting.”

The U.S. central bank has cut the benchmark lending rate to as low as zero and taken unprecedented steps to stem the credit crisis through direct support of consumer finance and mortgage lending. The Fed plans to purchase as much as $1.25 trillion in agency mortgage-backed securities this year to support the housing market and is providing financing for securities backed by loans to consumers and small businesses.

Bernanke and the Federal Reserve Board approved rules last July to toughen restrictions on mortgages, banning high-cost loans to borrowers with no verified income or assets and curbing penalties for repaying a loan early. The action came after members of Congress and other regulators urged the Fed to use its authority to prevent abusive lending.

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