Following an extended boom in housing, the demand for homes began to weaken in mid-2005. By the middle of 2006, sales of both new and existing homes had fallen about 15 percent below their peak levels. Homebuilders responded to the fall in demand by sharply curtailing construction.
— Ben Bernanke
The Federal Reserve has always recognized the importance of allowing markets to work, and government oversight of financial firms will never be fully effective without the aid of strong market discipline.
The public in many countries is understandably concerned by the commitment of substantial government resources to aid the financial industry when other industries receive little or no assistance. This disparate treatment, unappealing as it is, appears unavoidable.
There will not be an automatic increase in interest rate when unemployment hits 6.5%.
In the tradition of national income accounting, economic policymakers have typically focused on variables such as income, wealth, and consumption.
Market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs.
Of course, economic forecasts must be revised when new information arrives and are thus necessarily provisional.
Most of the policies that support robust economic growth in the long run are outside the province of the central bank.
The Federal Reserve, like other central banks, wields powerful tools; democratic accountability requires that the public be able to see how and for what purposes those tools are being used.
In all likelihood, a significant amount of time will be required to restore the nearly eight and a half million jobs that were lost nationwide over 2008 and 2009.
Identity theft is a serious crime that affects millions of Americans each year.
Obviously, I haven't succeeded in defusing the political concerns about the Fed.
I don't know why there aren't more Depression buffs.
After a long period in which the desired direction for inflation was always downward, the industrialized world's central banks must today try to avoid major changes in the inflation rate in either direction.
The downturn following the collapse of Japan's so-called bubble economy of the 1980s was not as severe as the Great Depression.
A.I.G. was even larger than Lehman, with a substantial presence in derivatives and debt markets, as well as in insurance markets.
One would be forgiven for concluding that the assumed benefits of financial innovation are not all they were cracked up to be.
Banks need to continue to lend to creditworthy borrowers to earn a profit and remain strong.
The financial crisis that began in the summer of 2007 was an extraordinarily complex event with multiple causes.
To minimize market uncertainty and achieve the maximum effect of its policies, the Federal Reserve is committed to providing the public as much information as possible about the uses of its balance sheet, plans regarding future uses of its balance sheet, and the criteria on which the relevant decisions are based.
History proves... that a smart central bank can protect the economy and the financial sector from the nastier side effects of a stock market collapse.
Evolving technologies that allow economists to gather new types of data and to manipulate millions of data points are just one factor among several that are likely to transform the field in coming years.
The actions taken by central banks and other authorities to stabilize a panic in the short run can work against stability in the long run if investors and firms infer from those actions that they will never bear the full consequences of excessive risk-taking.
The Federal Reserve cannot solve all the economy's problems on its own.
Monetary policy has less room to maneuver when interest rates are close to zero, while expansionary fiscal policy is likely both more effective and less costly in terms of increased debt burden when interest rates are pinned at low levels.
Fostering transparency and accountability at the Federal Reserve was one of my principal objectives when I became Chairman in February 2006.
I would argue that no financial instrument counted as regulatory capital should be allowed to receive any protection from losses.
The world has a great deal more to offer than money.
People saw the Depression as a necessary thing - a chance to squeeze out the excesses, get back to Puritan morality. That just made things worse.
No one will lend at a negative interest rate; potential creditors will simply choose to hold cash, which pays zero nominal interest.
Low and stable inflation in many countries is an important accomplishment that will continue to bring significant benefits.
After the 1929 crash, the Federal Reserve mistakenly focused its policies on preserving the gold value of the dollar rather than on stabilizing the domestic economy.
Given the extent of the exposures of major banks around the world to A.I.G., and in light of the extreme fragility of the system, there was a significant risk that A.I.G.'s failure could have sparked a global banking panic.
The Libor system is structurally flawed. It is a major problem for our financial system and for the confidence in the financial system. We need to address it.
If bankers become overly conservative in response to past lending mistakes - or if examiners force such behavior - it will hurt bankers' own long-term interests and the economy in general.
In the future, financial firms of any type whose failure would pose a systemic risk must accept especially close regulatory scrutiny of their risk-taking.
The Federal Reserve has never suffered any losses in the course of its normal lending to banks and, now, to primary dealers.
Evolutionary psychologists suggest that humans experienced evolutionary benefits from brain developments that included aversion to loss and risk and from instincts for cooperation that helped strengthen communities.
In many spheres of human endeavor, from science to business to education to economic policy, good decisions depend on good measurement.
As we try to make the financial system safer, we must inevitably confront the problem of moral hazard.
If two people always agree, one of them is redundant.
At the most basic level, a central bank must be clear and open about its actions and operations, particularly when they involve the deployment of public funds.
History has demonstrated time and again the inherent resilience and recuperative powers of the American economy.
Chairman Greenspan is, of course, a master.
Our financial system is so complicated and so interactive - so many different markets in different countries and so many sets of rules.
The Depression was an incredibly dramatic episode - an era of stock-market crashes, breadlines, bank runs and wild currency speculation, with the storm clouds of war gathering ominously in the background... For my money, few periods are so replete with human interest.
Deflation can be particularly dangerous when a financial system is shaky, with household and corporate balance sheets in poor shape and banks undercapitalized and heavily burdened with bad loans.
Central bankers got it right in the United States in 1987 when they avoided deflationary pressures as well as serious trouble in the banking system.
A collapse in U.S. stock prices certainly would cause a lot of white knuckles on Wall Street.
The Fed needs an approach that consolidates the gains of the Greenspan years and ensures that those successful policies will continue - even if future Fed chairmen are less skillful or less committed to price stability than Mr. Greenspan has been.
