Bernanke: Obama stimulus would lift economy

Public purchases of the troubled assets are one way to go, he said. Another option is to provide asset guarantees under which the government would agree to absorb — presumably in exchange for warrants or some other form of compensation — part of the prospective losses on specified portfolios of rotten assets held by banks. Yet another approach would be to set up and capitalize so-called "bad banks," which would buy assets from the financial institutions in exchange for cash and equity in the bad bank.

Some Americans and some on Capitol Hill have been upset about Treasury's management of the $700 billion program, which has provided aid to financial companies and others on Wall Street — some of whom are blamed for getting the country into economic the mess in the first place — while other struggling industries get little or no assistance.

Bernanke said he understands this concern, but added: "This disparate treatment, unappealing as it is, appears unavoidable."

The United States' economic system is critically dependent on the free-flow of credit, Bernanke said. It is like the economy's oxygen. As it has been cut off, the economy has sunk deeper into recession, taking Americans' jobs with it.

Washington policymakers, Bernanke said, "must therefore do what they can to communicate to their constituencies why financial stabilization is essential for economic recovery and is therefore in the broader public interest."

Obama's political skills will be put to a high-stakes test with Congress as he seeks assess to the second half of the $700 billion bailout pot. Congress has a 15-day deadline to reject the request, which President George W. Bush made on Obama's behalf on Monday.

To cushion fallout from the recession, the Fed in December slashed its key rate to an all-time low of between zero and 0.25 percent. The Fed signaled that it would keep rates at that level for some time and pledged to use unconventional tools to revive the economy. One such tool Bernanke again mentioned is the possibility of the Fed buying longer-term Treasury securities.

The central bank will meet later this month to assess economic and financial conditions.

Even as the U.S. battles the current crisis, it must move to prevent future ones. To be effective, international cooperation is needed, Bernanke said.

"A clear lesson of the recent period is that the world is too interconnected for nations to go it alone in their economic, financial and regulatory policies," Bernanke said. "International cooperation is thus essential if we are to address the crisis successfully and provide the basis for a healthy, sustained recovery."

In time, the global economy will recover from the current crisis, "but the timing and strength of the recovery are highly uncertain," he added.

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Aversa reported from Washington, D.C.