DALLAS -- Weighing his words, Federal Reserve Chairman Ben Bernanke declared Wednesday that the crisis that had the nation's financial system teetering on the brink of collapse is "largely behind us."
"But we are far from being out of the woods," the central banker cautioned 1,448 business people at a Dallas Regional Chamber luncheon while 10 demonstrators ideologically opposed to the Federal Reserve protested peacefully across the street. Bernanke said that there is still no evidence of a sustained recovery in the housing market, that delinquencies of both subprime and prime mortgages are rising, and that the commercial real estate sector remains troubled -- a concern for local communities and for the banks holding the notes.
"The economy has stabilized and is growing again, although we can hardly be satisfied when 1 out of every 10 U.S. workers is unemployed and family finances remain under great stress," Bernanke said in the first public speech here by a serving Fed chairman since Alan Greenspan in 2003.
Although layoffs have eased in recent months, hiring remains sluggish, he said. More than 40 percent of the jobless have been without work six months or longer, nearly twice the percentage a year ago.
In his most hopeful note, Bernanke predicted that the unemployment rate will slowly drop over the coming year because of economic growth helped by the Fed's stimulative monetary policy and low interest rates.
"If economic conditions improve, as I expect, we should see increased optimism among consumers and greater willingness on the part of banks to lend, which in turn should aid the recovery."
In the near term, inflation appears to be well-controlled, he said.
In separate remarks Wednesday, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, said the Fed needs to start boosting rates "soon." He did not say when.
If rate increases are delayed, "the outcome too often is greater inflation, significant credit and market imbalances, and an eventual financial crisis," Hoenig said in a speech in New Mexico.
He suggested that the Fed start moving its key rate toward 1 percent soon.
Hoenig is a voting member of the Fed's interest-rate-setting committee this year. At the last two meetings, he opposed the Fed's continued pledge to hold rates at record lows for an "extended period."
Bernanke said that with the recovery, the nation must address structural weaknesses in the financial system that permitted the economic unraveling.
"We need tough new rules to make financial institutions safer and constrain excessive risk-taking, and we need a regulatory framework that the gives the Federal Reserve and other agencies the ability to address risk to the financial system as a whole."
The country should no longer be faced with the "unpalatable choice between bailouts and disorderly bankruptcies," he said. "We must bring an end to the belief that some financial institutions are too big to fail."
What's required is a resolution system -- such as what now exists for banks -- for huge, intertwined financial firms, he said. While no financial instrument should be protected from losses, regulators must have the means to minimize the disruption to the financial system.
Bernanke stressed the need for banks to extend loans to creditworthy small businesses, which have been particularly hurt by the crunch. Bank examiners, he said, have been told to encourage banks to make such loans without taking on too much risk.
"That's the difficult balance we have to strive for," he said later during a brief question period.
In the long term, he warned, the aging of the population will lead to a dramatic rise in Social Security and Medicare demands.
"The arithmetic is unfortunately quite clear," Bernanke said. "To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to [programs like Social Security], less spending on everything else, from education to defense, or some combination of the above."
These choices are difficult and it's easier to put them off -- until they no longer can be postponed, he said.
"But unless we as a nation demonstrate a strong commitment to fiscal responsibility, in the longer run we will have neither financial stability nor healthy economic growth."
rus, being an articulate mb poster I assume you read the article you posted, so since you grant gov so much grace and faith, you may possibly be reassured that Tim and the gang have the "housing/mortgage crisis" in prop up mode and segregated to the balance sheet of the Fed and Federal Government for how ever long it will take to dilute the dollar enough to 'stimulate' enough inflation to allow anything that is not dollars to reflate it's arbitrary value. You Gov Lovers should take heart in a belief that there is no "crisis" too vast to overwhelm a Central Bank and complicit Gov.
"I am confident that the Fed would take whatever means necessary to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief."
Problem is ,<< Moral Hazard >>, as the Fed and Govs pile liquidity into the money contraction of debt redemption, the powerful are the reciepients with pockets open wide and connections pre arranged.
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