Chairman of the Federal Reserve Ben Bernanke said the U.S. will emerge from its still-deepening recession "probably this year," but he also cautioned that the nation's 8.1 percent unemployment rate will continue to climb.
Bernanke doesn't expect the economy to immediately return to its thriving, pre-recession days, but "we'll see recovery beginning next year. And it will pick up steam over time," he said in a rare "60 Minutes" interview
that aired Sunday evening. That recovery, however, is dependent upon a recouped financial system. The lesson of history, Bernanke said, is that you don't get a sustained recovery as long as the financial system is in crisis.
The now 15-month depression is on track to be the longest since the World War II era. But Bernanke believes the efforts of the government have helped to skirt a "much, much worse" outcome -- a second depression. "It was very close. The Congress passed the bill that gave Treasury the right to put capital into the banks -- in the first week of October. And it was the second week of October that the crisis reached its peak."
As for now, he told correspondent Scott Pelley that all the nation's big banks are solvent and "are not going to fail" under his watch. And by conducting stress tests, the government plans to evaluate how much capital each bank needs to be well capitalized. "Not just well solvent, but well capitalized," Bernanke said - a process that seems it would likely involve more capital injections.
The Fed and Treasury have come under intense scrutiny for the hundreds of billions of dollars they've committed to financial institutions of all sorts, sometimes two or three times over as in the cases of American International Group Inc. (AIG)
and Citigroup Inc. (C)
. But Bernanke said "Lehman proved that you cannot let a large internationally active firm fail in the middle of a financial crisis." The economy has continued to weaken; therefore, the government has had to do more, he said.
Although, Bernanke had no reservations in expressing his anger towards the government's intervention with AIG. "Here was a company that made all kinds of unconsciounable bets," he said candidly. "Then, when those bets went wrong, they had a -- we had a situation where the failure of that company would have brought down the financial system... I slammed the phone more than a few times on discussing AIG."
In discussing the future of the nation, Bernanke said there is no doubt the unemployment rate is going to inch higher than it is, but if the financial system is stabilized, "we'll begin to see a slower pace of decline, and eventually, a stabilization that will set the basis for a recovery," he said.
Kelly Curran at email@example.com
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