Ben Bernanke Speech

Name

10/27/11

Bus 254: Macroeconomics

2a.       Question 2a: (15 points) Ben Bernanke Speech

The Federal Reserve Chairman Benjamin S. Bernanke has seen some improvements in the economy. Within the U.S. the financial markets and banking system has seen large improvements since the financial crisis. Manufacturing within the U.S. has risen almost 15% since its lowest point. The improvement has been mostly caused by growing exports helping to lower the United States trade deficit noticeably. The growing exports demonstrate how products and services made in the United States have been able to compete worldwide. Businesses have continued to invest in equipment and software helping to make productivity gains in some sectors. While there has been improvement the recovery has not been as strong as the U.S. would have preferred. New government information shows the recession was deeper than estimated, while the recovery has been weaker than previously estimated. United States output still hasn’t achieved levels that were in place before the recession. With slow growth in the economy, the rate of joblessness and household incomes continues to be slow.

Mr. Bernanke Believes the United States federal budget is not sustainable. The chairman has recognized four key objectives that need to be considered when setting tax and fiscal policy. The first is to achieve long-run fiscal sustainability. With growing deficits and the federal government being forced to borrow more and more something has to be done. We cannot continue to borrow the money we need indefinitely. The second key objective is to avoid fiscal actions that could impede the ongoing economic recovery. Basically the U.S. government should keep in mind the near term goal of recovery when developing a plan to reduce the deficit over the long-term.

 Third is fiscal policy should aim to promote long-term growth and economic opportunity. The goal of reduced deficits should not impede the growth of the economy in the long-term either. The fourth objective is to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and economy. What the chairman seems to mean with his fourth objective is to tell the government they have to make better long term budget decisions. Making sure that the budget decisions they make can actually be paid for without causing massive changes in the economy. Businesses will not want to operate in a country without stability so predictability and clarity are important to economic growth. The chairman does not believe the United States budget spending is sustainable. He believes the nation has to make a fundamental choices with how we spend most of which will not be easy. Mr. Bernanke believes these decisions must be made it is ill responsible and unsafe to ignore them further.

The chairman made the statement that monetary policy is a powerful tool, but it not a panacea. What he meant by that is that while monetary policy to make progress within the economy it is not able to fix every problem the United States faces. Policymakers with cooperation from the private sector are needed to promote economic growth and job creation. Fiscal policy is of vital importance to ensure growth and sustainability. Along with fiscal policy other policies such as labor markets, housing, trade, taxation and regulation have major roles in the economy and will contribute to economic growth. The Federal Reserve will continue to do its part to help promote the best possible economic opportunity for all American citizens.