WASHINGTON (Reuters) - The following are highlights of Federal Reserve Chairman Ben Bernanke’s town hall meeting on Thursday with soldiers and their families at Fort Bliss, Texas.
“I‘m not a believer in the Old Testament theory of business cycles. I think that if we can help people, we need to help people and that’s why the Federal Reserve is, again, trying to do what we can to get the economy back on track. And we have made some progress, though we are still far from where we would like to be.”
BERNANKE ON U.S. NOT INSULATED FROM EUROPE‘S CRISIS
“The world’s financial markets are highly interconnected so if there were to be a substantial increase in financial stress in Europe -- say because of an unexpected and disorderly default by one of the countries -- that would create a freezing-up of credit, a withdrawal of short-term funding, a decline in stock prices, all those negative things ... not just in Europe but around the world. As we saw a few years ago if the financial system freezes up it has very serious implications for the economy and so it’s very much in our interests, in the interests of the emerging world as well as the Europeans, to find a solution to that situation. It is not something that we would be insulated from and although the Fed would obviously do all that we could to maintain stability and to keep monetary policy as easy as necessary to try to minimize the damage, I don’t think we would be able to escape the consequences of a blow-up in Europe.”
BERNANKE ON S&P‘S DOWNGRADING OF U.S. DEBT
“I think in some ways it is a secondary issue. After all, after S&P downgraded U.S. Treasury debt, the interest rates we pay on our Treasury debt actually went down rather than up. So in other words, the downgrade didn’t scare off any investors in terms of being willing to buy U.S. Treasuries. In fact, U.S. Treasuries remain a safe haven and whenever there is increased volatility in the markets because of some concern about Europe or something else that is causing worry, what you see is that people come in and buy Treasuries because they view that as among the very safest and most liquid investments in the world. So, in that respect the downgrade, or any potential downgrade hasn’t really done, at this point anyway, any significant damage to the United States economy or to our fiscal situation. But the underlying point is that we are not on a sustainable fiscal path.”
“It is certainly true that debt is a big part of our problem... Households trying to improve their balance sheets, trying to pay down their debt (and) trying to reduce their credit card balances are part of the reason why consumer spending has been relatively weak. And that has been a factor slowing the recovery.”
“It’s really important that they implement those steps, that they execute them forcefully and that they take whatever actions are necessary to stop the European crisis.”