Bernanke sees economy growing soon
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TEXT OF INTERVIEW
TESS VIGELAND: Federal Reserve chairman Ben Bernanke and other central bankers are in Jackson Hole, Wyo. for an annual gathering this week. Gone fishin’, you might say, for positive signs in the economy. And apparently they’ve found them. A return to growth in the near term appears good, Bernanke said. And by the way, that sell-off last year? Good old-fashioned panic.
We have Michael Bernstein on the line to parse that statement. He’s Tulane University’s provost and also teaches history and economics. Glad you could join us.
Michael Bernstein: Thank you.
Vigeland: In Ben Bernanke’s speech this morning, he referred to what he called “some features of a classic panic” last year. Do you agree? Was it a panic?
Bernstein: Certainly it had the potential to be a classic panic. I believe the Federal Reserve chairman meant by that the notion that there’d be a run on financial institutions with short-term lenders withdrawing their money as quickly as possible.
Vigeland: But this was not the conventional run on the banks that we kind of think of when we think of, for example, the Depression.
Bernstein: That’s right. The Great Depression of the 1930s witnessed the worst sight imaginable, which is long lines at banks with locked doors. And that sort of collapse did not occur a year ago and that has to do with a variety of reforms and regulatory mechanisms that the U.S. government has put in place since the Great Depression.
Vigeland: So the fact that the everyday Joe and Jane did not panic, is that what kept things from getting even worse?
Bernstein: Well, I think that’s part of the story. It’s a very good point that initially when the collapse started, I think all of us remember that Joe and Jane Consumer out there, this in a way came as sort of a surprise. It was these big institutions that were teetering on the edge of oblivion. And of course, the Federal Reserve Board and other major authorities around the world started to scramble to try and maintain them. I think the fact that this initially didn’t affect a broad spectrum of the population, and also, given the awareness that the government is ready to step in when banks are on the verge of financial ruin, did a great deal to prevent this from cascading into a classic panic, as Federal Reserve Chairman Bernanke mentioned earlier today.
Vigeland: So is the difference there an institution like the FDIC?
Bernstein: Very important, yes. Both Federal Deposit Insurance Corporation and the Federal Savings and Loan Insurance Corporation stand by to make sure that depositors don’t lose their money up to a certain maximum in banks that may themselves fail. So the banks may be gone in a corporate sense, they may be absorbed by other institutions or reorganized, but the money that we have on deposit there is never lost, because it’s insured by the federal government. That’s such a huge difference from the 1930s, it just can’t be emphasized enough.
Vigeland: What do you think it says about Chairman Bernanke’s view of the current economy and perhaps our own view, that he can actually feel comfortable enough to use the “P word,” to say out loud the word “panic”?
Bernstein: I think that’s a great observation. I don’t think that would’ve been possible six to eight months ago, certainly not a year ago.
It suggests to me two things: One, indeed, the Federal Reserve chairman sees some reasons for, if not outright optimism, certainly a sense that the worst may very well be getting behind us. But two, I think he is trying to send a message. By doing this he is literally trying to stoke the kind of reaction that your question represents. “Oh gee, maybe things are beginning to turn around and thereby to encourage consumers and investors to look more optimistically to the future.
Vigeland: Professor Bernstein, thank you so much for your time.
Bernstein: My pleasure, thank you.
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