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US Fed Calls For Aggressive Economic Action

Ben Bernanke, the chairman of the US Federal Reserve, said today that bold Government action was needed to steer America's economy out of a deepening slump - even if the result was a rise in federal debt.

Speaking in front of the Senate Budget Committee in Washington, Mr Bernanke said that the country would be better of "moving aggressively to solve our economic problems."

President Barack Obama’s recently enacted $787 billion stimulus package of increased federal spending and tax cuts should help revive moribund consumer demand, boost factory production over the next two years and “mitigate the overall loss of employment and income that would otherwise occur,” Mr Bernanke said.

His comments came a day after AIG, the embattled insurer, announced record losses of more than $61 billion and a further $30 billion in funds from the Government, sending the Dow Jones plunging to the lowest level in more than 12 years.

At the same time, Gordon Brown is meeting with President Obama to discuss ways of stabilising the global economy.

Mr Bernanke said that the massive government bailout of AIG was the best chance for financial stability, but did not mince his words about his feelings on the near collapse of company, saying it was this situation which had made him most angry during the financial crisis.

Just days ago the true extent of the recession gripping the US was revealed as official figures showed that GDP dropped at an annual rate of 6.2 per cent in the final three months of last year, a massive revision from the 3.8 per cent drop initially estimated.

Mr Bernanke was frank about the repercussions if the Government failed to act. “The alternative could be a prolonged episode of economic stagnation that would not only contribute to further deterioration in the fiscal situation, but would also imply lower output, employment, and incomes for an extended period,” he said.