Bernanke: Obama Stimulus Would Lift Economy

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(WASHINGTON) — Federal Reserve Chairman Ben Bernanke said Tuesday the stimulus package being crafted by President-elect Barack Obama and Congress could provide a "significant boost" to the sinking economy. But he warned that such a recovery won't last unless other steps are taken to stabilize the shaky financial system.

Although Bernanke has previously endorsed the notion for a fresh round of government stimulus to lift the country out of a recession, it marked the first time the Fed chief has referenced the roughly $800 billion recovery plan now being worked on by Obama, who takes office next week. Obama envisions a blend of tax cuts and increased government spending, including on big public works projects, to make up the stimulus plan. (See pictures of TIME's Wall Street covers.)

Bernanke, who didn't weigh in on the details of the evolving package, made clear that such a recovery plan was needed as part of a broader, multi-pronged government response to combat the worst financial crisis to hit the U.S. and the global economy since the 1930s.

"The incoming administration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity," Bernanke said in a speech to the London School of Economics.

"In my view, however, fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system," he warned. "History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively."

http://www.time.com/time/business/article/0,8599,1871313,00.html