The economy is teetering and central bank's usual tools aren't working

[Better Believe It]

Bernanke's options down to comforting words
Economy is teetering and central bank's usual tools aren't working
By JEANNINE AVERSA
August 26, 2010

WASHINGTON — The U.S. economy appears to be stalling. Yet the Federal Reserve has run out of simple steps it can take to revive it.

That's the test facing Fed Chairman Ben Bernanke as he addresses a conference Friday in Jackson Hole, Wyoming. Without any easy options left, Bernanke must try to prevent another recession by persuading people and businesses to feel confident enough about the future to spend more today.

Weak consumer spending and a scarcity of jobs have put the economy at risk of lapsing into another downturn. Short-term interest rates near zero have yet to rejuvenate the economy. The benefits of federal stimulus programs are fading, and Congress has declined to pass any major new economic aid.

Bernanke's task isn't confined to restoring public confidence. Equally vital, he must forge consensus within the fractious Fed itself. Some Fed officials have been reluctant to have the central bank invest more money than it already has to try to stimulate borrowing and spending.

Any additional efforts by Bernanke to lower long-term rates will likely run into resistance. One Fed governor, Kevin Warsh, has expressed concern that further such efforts could alarm investors about the economy.

And in a speech after the Fed's meeting this month, Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, noted that the Fed's decision this month to buy more government debt led investors to think the U.S. economy was worse than it is.

Beyond public words, Bernanke does have some remaining options for reviving the economy. He could, for example, launch another trillion-dollar-plus program to buy government debt or mortgages securities. The idea would be to stimulate borrowing and spending and avoid deflation.

But even if Bernanke could persuade most other Fed members to go along, the efforts could backfire. Credit that becomes too cheap, for example, might feed speculative bubbles in the prices of assets like stocks, bonds and commodities that could burst and hurt the economy.

Read the full article at:

http://www.msnbc.msn.com/id/38870575/ns/business-eye_on_the_economy

[DJ13]

1. There are "emergency" actions the Fed could take

They're allowed to circumvent the banks and loan directly to businesses and consumers if they need to.

That might be the spark it would take to get the banks to stop gambling in investments and return to a more traditional banking business.

[msongs]

2. our terrorist corporations are off shoring our jobs - til that reverses, .....bye bye economy nt