[NYTIMES]: Fed Chairman Backs Call for Higher Spending

http://www.nytimes.com/2009/03/04/us/politics/04budget.html

March 4, 2009
Fed Chairman Backs Call for Higher Spending
By EDMUND L. ANDREWS and JACKIE CALMES
WASHINGTON — The chairman of the Federal Reserve on Tuesday tacitly endorsed President Obama’s call for huge increases in spending and trillion-dollar deficits over the next couple of years, saying the economic crisis required aggressive action.

Though the chairman, Ben S. Bernanke, did not endorse any of Mr. Obama’s specific proposals, he echoed the president’s call for bold government action to address the economy’s immediate travails and pointedly refused to criticize his longer-term plans.

“All else equal, this is a development that all of us would have preferred to avoid,” Mr. Bernanke told the Senate Budget Committee, referring to record-breaking deficits expected this year and in the next two years. “But our economy and financial markets face extraordinary challenges, and a failure by policy makers to address these challenges in a timely way would likely be more costly in the end.”

Two officials on Mr. Obama’s economic team, Treasury Secretary Timothy F. Geithner and Peter R. Orszag, the budget director, made similar arguments as they defended the new Obama budget and fielded Congressional Republicans’ criticism in separate appearances on Tuesday on Capitol Hill.

Mr. Bernanke, a Republican who was appointed by President George W. Bush, provided Mr. Obama and Democratic lawmakers with crucial backing for the political battles ahead. His comments were reminiscent of the support that his predecessor, Alan Greenspan, gave to Mr. Bush’s call for tax cuts in 2001. Many lawmakers in both parties said Mr. Greenspan’s comments had helped override Democratic objections to Mr. Bush’s tax cuts.

Mr. Bernanke deepened his working alliance with the new president on Tuesday, as the Fed and the Treasury announced plans to increase up a $1 trillion lending program faster than many had expected.

The new program, called the Consumer and Business Lending Initiative, was conceived as a way to finance lending to consumers. Last month, the Obama administration proposed expanding the program’s reach to revive the frozen credit markets for business financing as well.

In a joint announcement on Tuesday, the Fed and the Treasury announced that the first money for consumer loans would start flowing in late March and that the program would expand in April to finance equipment purchases, automobile leasing and other types of loans.

“We have to jump-start the credit markets and get private lending going again,” Mr. Obama said in an appearance at the Transportation Department to announce the first road projects to get financing from the new economic stimulus law. The new program, he said, “will help unlock our frozen credit markets, which is absolutely essential for economic recovery.”

In another appearance on Tuesday, with Prime Minister Gordon Brown of Britain, Mr. Obama suggested that it might be time to be putting money back in the stock market “if you’ve got a long-term perspective on it.”

“You know, the stock market is sort of like a tracking poll in politics,” Mr. Obama said. “It bobs up and down day to day, and if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

Mr. Bernanke, warning that the economy had yet to show hardly any sign of recovery, brushed aside objections by Republicans that Mr. Obama’s plans would lead to a dangerous growth of government.

Republican lawmakers tried to draw the Fed chairman into their corner, to no avail. “There is in this budget a massive movement of the government to the left, in other words a massive expansion of the government,” warned Senator Judd Gregg of New Hampshire, the committee’s ranking Republican.

But Mr. Bernanke simply said that Congress and the White House needed to start thinking now about how to bring the federal budget back to normal.

Lawmakers in both parties chastised the Fed and the Treasury for providing $30 billion more to the American International Group, the insurance conglomerate that had already received three rounds of government help totaling $152 billion.

Mr. Bernanke, in an unusually emotional response, criticized the insurance giant as making reckless bets that jeopardized the entire financial system.

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one,” he said.

Saying that A.I.G. had “exploited a huge gap” in the regulatory system, Mr. Bernanke said it became a “hedge fund, basically, that was attached to a large and stable insurance company” and made “huge numbers of irresponsible bets.”

The administration officials testified that long-term deficit reduction was built into Mr. Obama’s budget for the 2010 fiscal year that begins in October, and reflected in a 10-year projection of spending and revenues. Mr. Obama’s plan would mainly reduce deficits through higher taxes on households with annual incomes of more than $250,000 and through savings from winding down the Iraq war.

“This is simply not a big-spending budget,” Mr. Orszag, the budget director, told the House Budget Committee. He said that discretionary domestic spending — nearly all programs other than the fast-growing Medicare, Medicaid and Social Security entitlements — would average 3.6 percent of the total economy, the lowest level since data began to be collected in 1962.

Mr. Orszag added that the president’s initiatives on health care, energy and education policies included proposals to offset the costs. None of the new taxes or revenue sources would take effect before 2011, by which time the economy should be recovering, he emphasized.

Mr. Orszag and Mr. Geithner, who went before the House Ways and Means Committee, came under attack from Congressional Republicans who said the Obama budget was based on a far too rosy view of the recovery.

When Mr. Geithner insisted to Representative Kevin Brady, Republican of Texas, that “this is a realistic forecast,” Mr. Brady countered that the budget’s projections were “nowhere close” to private sector forecasts.

Administration officials responded that most private forecasts did not account for the positive impact of the $787 billion, two-year stimulus package.

 

I guess TJ will say that the Fed Chairman is now a misguided liberal who along with Obama and 53% of the country will ruin our economy???

 

The 2001 tax cuts are widely agreed upon by economists as having pulled the country out of recession.

That wasn't the problem with Bush's platform - it was everything else.