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Obama plan 'would lift economy' | Obama plan 'would lift economy' |
(about 2 hours later) | |
The stimulus package proposed by President-elect Barack Obama would give the US economy a "significant boost", says Federal Reserve boss Ben Bernanke. | The stimulus package proposed by President-elect Barack Obama would give the US economy a "significant boost", says Federal Reserve boss Ben Bernanke. |
In a speech in London, Mr Bernanke said that any plan must be accompanied by measures to stabilise and strengthen the financial system. | In a speech in London, Mr Bernanke said that any plan must be accompanied by measures to stabilise and strengthen the financial system. |
Mr Bernanke added that financial institutions deemed too big to fail had to accept closer regulation. | Mr Bernanke added that financial institutions deemed too big to fail had to accept closer regulation. |
He said the central bank still had "powerful tools" to tackle the crisis. | He said the central bank still had "powerful tools" to tackle the crisis. |
"The incoming administration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity," he said. | "The incoming administration and the Congress are currently discussing a substantial fiscal package that, if enacted, could provide a significant boost to economic activity," he said. |
But he said that a modern economy could not grow unless its financial system was operating effectively. | But he said that a modern economy could not grow unless its financial system was operating effectively. |
The world is too interconnected for nations to go it alone in their economic, financial and regulatory policies Ben Bernanke, Federal Reserve chairman | |
"It is unacceptable that large firms that government is now compelled to support to preserve financial stability were among the greatest risk-takers during the boom period." | "It is unacceptable that large firms that government is now compelled to support to preserve financial stability were among the greatest risk-takers during the boom period." |
"The existence of too-big-to-fail firms violates the presumption of a level playing field among financial institutions," he added. | "The existence of too-big-to-fail firms violates the presumption of a level playing field among financial institutions," he added. |
Mr Bernanke's speech came as the US trade deficit dropped to its lowest level in more than five years in November, as the economic slowdown led to lower demand for imports. | |
The trade deficit shrank 28.7% from October to $40.4bn (£27.7bn), the Commerce Department said. | |
Alternative approach | |
BBC economics correspondent Andrew Walker said the most striking part of Mr Bernanke's speech was the suggestion of a return to the original idea of using the bail-out programme to buy troubled assets. | |
"This approach was sidelined in favour of making capital injections," our correspondent said. | |
Mr Bernanke said that the Treasury might buy troubled assets, or give guarantees that it would take on some of the prospective losses in exchange for warrants or other compensation. | |
Another approach would be to set up and fund banks to buy assets from financial institutions. | |
International regulation | |
Mr Bernanke also signalled that the US need to consider the long-term regulatory changes needed to make sure such a crisis did not reoccur. | |
"We do not have the luxury of postponing work on longer-term issues," he said. | |
He said that a key issue was strengthening the capacity of both the private sector and regulators to detect and manage risk. | |
And he signalled that the US would be far more amenable to seeking international regulation than in the past. | |
"The world is too interconnected for nations to go it alone in their economic, financial and regulatory policies," he said. | |
"International co-operation is thus essential if we are to address the crisis successfully and provide the basis for a healthy, sustained recovery," he added. |
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