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How much would you pay to avoid a second Depression?

Ben Bernanke

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.
BEN BERNANKE

Chance Guidance Inference
The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis.
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Lessons Long Recovery
The more important reason is that the research itself provides an important long-run perspective on the issues that we face on a day-to-day basis.
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Issues Perspective Running
How much would you pay to avoid a second Depression?
BEN BERNANKE

Borrow Depression Great Pay
The best approach here, if at all possible, is to use supervisory and regulatory methods to restrain undue risk-taking and to make sure the system is resilient in case an asset-price bubble bursts in the future.
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Investing Risk Use
The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.
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Government Technology Wish
Importantly, in the 1930s, in the Great Depression, the Federal Reserve, despite its mandate, was quite passive and, as a result, financial crisis became very severe, lasted essentially from 1929 to 1933.
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Depression Financial Great Result
House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.
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Fundamental Past Strong Years
The amount of currency in circulation is not changing. The money supply is not changing in any significant way.
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Currency Significant Way
In the future, my communications with the public and with the markets will be entirely through regular and formal channels.
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Communication Formal
I and others were mistaken early on in saying that the subprime crisis would be contained. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict.
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Casual Financial Problem Relationship
The central bank needs to be able to make policy without short term political concerns.
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Able Needs Political
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.
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Growth Home Jobs
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.
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Banking Ratio Serious
I don’t see much evidence of an equity bubble.
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Bubbles Equity Evidence
The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand.. a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers.
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Cutting Ongoing Order
If you want to understand geology, study earthquakes. If you want to understand the economy, study the Depression.
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Depression Earthquake Want
I’d throw dollars out of helicopters if I had to, to stimulate the economy.
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Dollars Economy Helicopters
Life is amazingly unpredictable; any 22-year-old who thinks they know where they will be in 10 years, much less in 30, is simply lacking imagination.
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Imagination Thinking Years
Both humanity’s capacity to innovate and the incentives to innovate are greater today than at any other time in history.
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Humanity Incentives Today
In fact, the world needs more nerds.
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Needs Nerd World
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.
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Employment Financial Growth
Every effort needs to be made to try and offset the costs of Katrina and Rita by reductions in other government programs, especially those that are wasteful, duplicative and ineffective.
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Effort Government Trying
We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s going to drive the economy too far from its full employment path, though.
BEN BERNANKE

Employment House Thinking
The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.
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Financial Impact Problem
Achieving price stability is not only important in itself, it is also central to attaining the Federal Reserve’s other mandate objectives of maximum sustainable employment and moderate long-term interest rates.
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Employment Important Long
It takes about two and a half percent growth just to keep unemployment stable.
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Growth Two Unemployment

How much would you pay to avoid a second Depression?

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