The economic repercussions of a stock market crash depend less on the severity of the crash itself than on the response of economic policymakers, particularly central bankers.
Investment banks manage to go bankrupt through their investment-banking activities, commercial banks manage to go bankrupt through their commercial-banking activities.
Under a cold turkey strategy, at each policy meeting the Federal Open Market Committee would make its best guess about where it ultimately wants the funds rate to be and would move to that rate in a single step.
The more guidance a central bank can provide the public about how policy is likely to evolve the greater the chance that market participants will make appropriate inferences.
I generally leave the details of fiscal programs to the Administration and Congress. That’s really their area of authority and responsibility, and I don’t think it’s appropriate for me to second guess.
The risk exists that, with aggregate demand exhibiting considerable momentum, output could overshoot its sustainable path, leading ultimately in the absence of countervailing monetary policy action to further upward pressure on inflation.
It is not the responsibility of the Federal Bank – nor would it be appropriate – to protect lenders and investors from the consequences of their decisions
The crisis and recession have led to very low interest rates, it is true, but these events have also destroyed jobs, hamstrung economic growth and led to sharp declines in the values of many homes and businesses.
I assure this committee that, if I am confirmed, I will be strictly independent of all political influences… essential to that institution’s ability to function effectively and achieve its mandated objectives.
A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street. But what effect would it have on the broader U.S. economy? If Wall Street crashes, does Main Street follow? Not necessarily.
Our mission, as set forth by the Congress is a critical one: to preserve price stability, to foster maximum sustainable growth in output and employment, and to promote a stable and efficient financial system that serves all Americans well and fairly.
Among the largest banks, the capital ratios remain good and I don’t expect any serious problems . . . . among the large, internationally active banks that make up a very substantial part of our banking system.
