Bernanke fires back at critics
He defends Fed's $600B bond-purchase program, blasts China on currency
WASHINGTON — Federal Reserve Chairman Ben Bernanke hit back at critics, both at home and abroad, who have challenged the central bank's $600 billion bond-purchase program.
In a speech in Germany, he argued that Congress must help support the Fed's program with further stimulus aid. And he issued a stern warning to China, saying it and other emerging nations are putting the global economy at risk by keeping their currencies artificially low.
Bernanke made the remarks Friday at a banking conference in Frankfurt.
Without more stimulus, high unemployment could persist for years, he said. But in making that argument, Bernanke risks heightening complaints that he's plunging the Fed into partisan politics.
The Fed's Treasury bond-buying program is intended to invigorate the economy in part by lowering interest rates, lifting stock prices and encouraging more spending. Lower interest rates on loans would prompt companies to borrow and expand.
And higher stock prices would boost the wealth and confidence of individuals and businesses, Bernanke has suggested. The additional spending would lift incomes, profits and growth.
But the Fed's program has triggered a barrage of criticism both within the United States and abroad.
Republican leaders in Congress and some Fed officials are among those who say they doubt the program will help the economy. They also worry it could unleash inflation and lead to speculative buying on Wall Street.
And at a summit of world leaders in South Korea last week, China, Germany, Brazil and other countries complained that the Fed's plan would give U.S. exporters a competitive price edge by flooding world markets with dollars. A weaker dollar makes U.S. goods more attractive to foreign buyers.
Emerging economies like Thailand and Indonesia also fear that falling Treasury yields will send money flooding their way in search of higher returns. Such emerging markets could be left vulnerable to a crash if investors later decide to pull out and move their money elsewhere.
Still, European Central Bank President Jean-Claude Trichet insisted during a panel discussion after Bernanke's speech that he and the Fed chairman "strongly share the view that a solid strong dollar ... is very important."
The International Monetary Fund's head, Dominique Strauss-Kahn, said he believes that "wherever it's possible ... the support to growth is still something which is absolutely necessary."
He cited the U.S. as an example, saying the economy could pick up to 4 percent growth or slow to less than 2 percent growth, "and the consequences for the rest of the world would be huge." Still, he also said that in general there's a need to "restore confidence" by tackling debt problems.
Because countries are recovering from the severe global recession at different speeds, tensions among nations have risen, making it harder to find global solutions to global problems, Bernanke said. So-called emerging countries like China, Brazil and India are growing at much faster rates than "advanced" economies like the United States, Japan and Britain.
"Insufficiently supportive policies" in the United States and other advanced economies could "undermine the recovery not only in those economies but for the world as a whole," Bernanke warned.
By contrast, China and other emerging economies face the challenge of keeping growth robust, without igniting inflation, he said. By keeping their currencies artificially weak, China and other emerging economies are causing problems for themselves and for the stability of the world economy, Bernanke said.