Fed Chief Warns Congress to Act Quickly on Economic Crisis

Fed chief warns Congress to act quickly

The Federal Reserve chairman, Ben Bernanke, told lawmakers Tuesday that the United States could be in for "a prolonged episode of economic stagnation" if they did not forcefully address the nation's financial crisis, but he quickly encountered deep anger, particularly over government support for American International Group.

Bernanke told the Senate Budget Committee that the worst outlook, should action on the crisis come too slowly, would be "further deterioration in the fiscal situation" and probably "lower output, employment and incomes for an extended period."

Bernanke's testimony came as Congress began on Tuesday the long process of considering Obama's spending plan, which envisions a deficit of $1.8 trillion this year and trillion-dollar deficits only slowly coming under control in future years.

While the Fed would normally look askance at numbers like that, the testimony on Tuesday seemed intended to give a green light, as part of a no-holds-barred economic recovery program.

Bernanke said the consequence might well be an increase in public debt to the equivalent of 60 percent of economic output, compared with 40 percent before the economic crisis began - and reminiscent of the levels after the gigantic borrowing of World War II.

March 3, 2009

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