According to today’s Associated Press report:
Federal Reserve Chairman Ben Bernanke told Congress Tuesday the economy is suffering through a “severe contraction” and pledged to use all available tools to lift the country out of the recession that already has cost millions of Americans their jobs.
The AP also reports – To brace the economy, many analysts predict the Fed will leave its key rate at record lows through the rest of this year. The Fed has also said repeatedly that it will explore expanding existing programs to provide loans or buy debt, or come up with new tools to fight the crises.
In the past, I’ve criticized the Fed Chief as being a tool himself for not seeing this recession coming, but since then, I’ve changed my tune. It seems to me that Mr. Bernanke is already using most of the economic tools at his disposal during this crisis. I believe that Mr. Bernanke is doing his best to prevent an already bad recession from becoming an economic depression, in-spite of any political influences that may be hampering his efforts.
But, it seems as if we’re in need of some type of cathartic to help relieve ourselves of this economic contraction. I know of one powerful tool that I’ve often recommended to stimulate severe contractions.
But it may not be needed. As luck would have it, the Fed Chief used one of the best tools in his economic stimulus arsenal today, the tool of frank and open communication with the American public. A portion of this economic crisis (and market crisis) is fear-driven. Communication is one of the best tools available to the Fed for calming fears, and clarity is key.
Americans need to be continuously informed by our leaders of what is being done to remedy this situation. Informed people usually don’t panic. Investors specifically need to know of our Government’s intentions and we all need honest reassurance that the Fed is working in our best interests.
Today’s reassurance by Mr. Bernanke and the resulting bullish market action attests to this fact. Let’s hope he continues to use this effective tool and that we don’t have to use my remedy for economic contraction.
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