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Sunday, December 05, 2010

Bernanke: Without Fed's actions, unemployment rate might have hit 25%

by Calculated Risk on 12/05/2010 09:06:00 PM

From the CBS 60 Minutes interview: Fed Chairman Bernanke On The Economy

CBS: In the panic of 2008, the Fed put up $3.3 trillion. And just this past week, the Fed revealed who got emergency help. ... it was a historic transfusion of cash in a global system that was bleeding to death. We asked Bernanke what would have happened if the Fed hadn't acted.

Scott Pelley: What would unemployment be today?

Fed Chairman Bernanke: Unemployment would be much, much higher. It might be something like it was in the Depression. Twenty-five percent. We saw what happened when one or two large financial firms came close to failure or to failure. Imagine if ten or 12 or 15 firms had failed, which is where we almost were in the fall of 2008. It would have brought down the entire global financial system and it would have had enormous implications, very long-lasting implications for the global economy, not just the U.S. economy.
Although we don't how bad it would have been, I've repeatedly praised the Fed's creative and aggressive liquidity efforts - once they finally understood what was happening. This was the Federal Reserve at its best (and they are constantly criticized for this effort).

And on the Fed at its worst:
Pelley: Is there anything that you wish you'd done differently over these last two and a half years or so?

Bernanke: Well, I wish I'd been omniscient and seen the crisis coming, the way you asked me about, I didn't.
Bernanke was flat out blind. Missing the housing bubble and inevitable financial impact was inexcusable. I criticized Bernanke repeatedly in 2005, 2006 and 2007 for not recognizing the serious problems with the economy. I ridiculed Bernanke's 2005 piece in the WSJ: The Goldilocks Economy and wrote then that Bernanke was "channeling Coolidge's [Dec 1928] monument to economic shortsightedness".

There is much more in the interview including comments on income inequality ... "Well, it’s a very bad development. It’s creating two societies." ... and on unemployment ... "At the rate we're going, it could be four, five years before we are back to a more normal unemployment rate."

As always, I suggest ignoring Bernanke's comments on the deficit.

Summary for Week ending December 4th
Schedule for Week of December 5th