WASHINGTON (MarketWatch) — Federal Reserve Board Chairman Ben Bernanke discussed the economy with average Americans on Sunday, saying the current financial crisis could be even more virulent than the Great Depression.
“A lot of things happened, a lot came together, [and] created probably the worst financial crisis, certainly since the Great Depression and possibly even including the Great Depression,” Bernanke said at the start of a town-hall meeting in Kansas City.
Bernanke defended the Fed’s extraordinary moves, which have included slashing interest rates to zero, pumping billions of dollars to keep credit markets open, and buying Treasurys and mortgage debt to keep long-term interest rates low.
“I was not going to be the Federal Reserve chairman who presided over the second Great Depression,” he said.
The event is being televised over three nights, beginning Monday, by U.S. public television network PBS. Members of the public, screened by PBS, were able to ask questions.
Many questioners expressed unhappiness with the “too big to fail” doctrine. One asked when Bernanke would get around to firing the leadership of banks that had to accept government assistance.
Another participant said the only thing that was clear to him in the whole crisis was that his small business was “too small to save.”
At first, Bernanke tried to argue that the Fed moved to save big banks to protect the global economy, but by the end, Bernanke simply agreed that “too-big-to-fail has got to go.”
The dialogue marked the first time that a sitting Fed chairman has sat down to answer questions on the record from the public. For the first 80 years of its existence, Fed officials operated under the rule that the less said, the better.
But recent economic research has indicated that Fed interest-rate policy actually works better if the public understands its basic thrust. This has led the Fed, in fits and starts, to try to open up.
The results at the town hall meeting were choppy at times, although Bernanke seemed to get better as the event went along.
The first questioner admitted she didn’t “have a clue” what the Fed did. It is doubtful that Bernanke’s laundry list response — the Fed is monetary policy maker, bank supervisor, crisis manager and consumer protector — helped her very much.
Asked when “this [recession] is going to end,” Bernanke said growth would return in the second half of 2009, likely at a 1% pace. The unemployment rate won’t peak until next year, he said.
The Fed has put the “pedal to the metal” to try to get the economy growing at a faster pace.
Maybe because his earlier answers were on the scary side, Bernanke then tried to be a cheerleader, saying that the U.S. economy “couldn’t be held down” and would eventually return to a strong growth pace.
By Greg Robb
Jul 26, 2009, 10:21 p.m. EST