On Monday, at Obama’s urging, President Bush called for Congress to release the second half of the $700 billion financial system bailout. A NY Times article this morning quotes Federal Reserve Chairman Ben Bernanke saying that while the bailout and Obama’s stimulus plan will certainly help, much more is needed. “Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” he said at the London School of Economics yesterday. Beyond lowering the benchmark interest rate, he argues that the Federal Reserve must use many of the other tools at its disposal, including lowering mortgage rates, providing asset guarantees, and more capital injections.
In a talk here at the Council on Wednesday, Adam Posen, Deputy Director of the Peterson Institute for International Economics, addressed this same issue. He spoke with great insight on Obama’s stimulus plan, boiling down complicated details into a very digestible format. He emphasizes the need for any economic recovery plan to focus heavily on public works and funding at the state and city level, not on big businesses that will only use it to pay down their debts.