Fed Chairman Ben Bernanke Tells Congress Credit Default Could be Disastrous for U.S.

Federal Reserve Bank Chairman Ben Bernanke

Fed Chairman Ben Bernanke spent almost three hours on Capitol Hill today taking questions from the House Financial Services committee. Republicans took aim at the cost of entitlement programs and hammered the Chairman on what would actually create jobs. "At what point is there going to be political courage if we can’t to do it today" Rep. Sean Duffy (R- WI) asked. "Do you think we can help our job seekers by taxing our job creators?" Bernanke told Duffy "it depends on how you do it"
The Chairman did make it clear that if debt ceiling negotiations continued to stall that "defaulting would create tremendous uncertainty in U.S.," and that "defaulting would set back job creation significantly" He also reminded congress that it had only been a few years since the financial crisis. That financial institutions and markets were not able to forecast how long the recovery will last and what the long term impact this short period of recovery will have on the economy. "We don't want to hamstring the financial system," Bernanke said.

Republicans asked the Fed Chair to explain what impact raising taxes could have on economic recovery. Bernanke suggested that it might be wise to "maintain and lower marginal taxes and eliminate tax breaks that may be spending in disguise." The Fed Chair also reassured Congress that quantitative easing or QE2 did not cost the government anything but that he is "very much in favor of a reduction in our fiscal deficit." and that if the balance budget amendment could be done, "it must have some flexibility." He also explained to Congress that "not raising debt limit is like going on a spending spree and not paying the bill."

Maxine Waters (D-CA) used her five minutes to close the hearing with questions on the TAFT program. The Congresswoman launched tough question at the Chairman regarding a two-hundred twenty million dollar payout to two women, one of whom is the wife of a JP Morgan Chase executive who had only a fifteen million dollar investment in buying up security backed debt, like student loans for example. These two women, according to the Congressman had no business experience but did have connections to capitalize on programs like TAFT. The Congresswoman told the committee that she'd had many meetings the Fed Chair and minority business owners in an effort to build relationships between the Fed and minority businesses. None of these businesses received funds form TAFT. "How many African American and minority businesses did you fund through the TAFT program? Bernanke told the Congresswoman that, "it is difficult to identify the race of shareholders," and "the program was available to any American company that qualified"

The Congresswoman also asked the chairman about a lawsuit filed by the Federal Reserve Bank of Richmond Virginia against Bank of America for 8.5 billion. The lawsuits will re-coup 8.5 billion only 5% of what the bank purchased in bad loans. The Chairman told the commit tie "we went after what we thought we could get and that the 8.5 billion was determined by the court"

The Dow Jones industrial was up 150 points at the close of the House Financial Services hearing that ended at12:30 PM EST. The gains prompted by testimony by the Chairman have been a result of the Fed Chairman's statement that he economy may need "additional policy support" to boost the economy to levels that would spur the type of growth that Americans need to see to start spending. Wall Street may have interpreted the Chairman's testimony as an indication that QE3 may be on the way. This likely spurred the 100 point plus gain.