THE UNITED States could emerge from recession by the end of this year – but only if the financial system is stabilised, Federal Reserve chairman Ben Bernanke told senators yesterday.
Declaring that the US is in a “severe contraction” that is likely to last at least six months, Mr Bernanke warned that the recession could continue well into 2010 unless credit and financial markets start working normally again.
“If actions taken by the administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability – and only if that is the case, in my view – there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Mr Bernanke told the senate banking committee.
The Federal Reserve chairman was speaking as new figures showed consumer confidence plunging as house prices fell by their biggest annual rate since records began. The New York-based Conference Board said its Consumer Confidence Index, which was down slightly in January, fell more than 12 points in February to 25 – more than 10 points lower than most economists predicted.
House prices in 20 American metropolitan areas fell 18.5 per cent in December from a year earlier, according to SP/Case-Shiller.
With unemployment already at its highest level since 1992, Mr Bernanke said the jobless rate is likely to rise close to 9 per cent by the end of this year.
“I believe that, overall, the downside risks probably outweigh those on the upside. One risk arises from the global nature of the slowdown, which could adversely affect US exports and financial conditions to an even greater degree than currently expected,” he said.
Mr Bernanke said that the unprecedented steps taken by the Federal Reserve in recent months to ease the flow of credit had contributed to improvements in short-term funding markets and the commercial paper market.
Many Americans remain sceptical, however, about the wisdom of pumping hundreds of billions of dollars of government money into financial institutions, some of which used bailout funds last year to finance big bonuses for top executives.
Former Merrill Lynch chief executive John Thain yesterday agreed to disclose to New York state lawyers the names of employees who got $3.6 billion in bonuses just before the firm merged with Bank of America on January 1st this year.
Merrill Lynch and Bank of America have received about $45 billion from the government’s bank bailout and New York attorney general Andrew Cuomo has been looking into whether Merrill broke securities laws when it paid the bonuses.
Mr Cuomo said earlier this month that Merrill “secretly and prematurely” awarded $3.6 billion in bonuses, with Bank of America’s “apparent complicity” and did not adjust them to take account of bigger than expected losses of $15.31 billion in the fourth quarter of 2008 alone and $27 billion for the year.
A Miami judge ruled yesterday that Swiss bank UBS must respond by April 30th to a US lawsuit seeking the names of 52,000 Americans who allegedly used Swiss accounts to hide money from tax authorities.
UBS said last week that the lawsuit is a violation of Swiss sovereignty and seeks to compel bank employees to violate criminal laws by forcing disclosure of names.
