Beranke Warns of Recession

By Rick Moran

Federal Reserve Chairman Bernard Bernanke in remarks before the Joint Economic Committee, said that a recession is "possible:"

Bernanke's testimony the Joint Economic Committee of Congress was a more pessimistic assessment of the economy's immediate prospects than a report he delivered earlier this year.

His appearance on Capitol Hill came amid a trio of economic slumps in the housing, credit and financial areas. "It now appears likely that gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly," Bernanke told lawmakers. GDP measures the value of all goods and services produced within the United States and is the best barometer of the United States' economic health.

Under one rule, six straight months of declining GDP, would constitute a recession. Bernanke said "a recession is possible" but he also said he expects more economic growth in the second half of this year and into 2009, helped by the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed's aggressive reductions to a key interest rate.

"Much necessary economic and financial adjustment has already taken place, and monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year," Bernanke said.

While there is no doubt the economy is slowing down - latest figures show an anemic growth rate of .6% - the belief by Bernanke that the economy may begin to grow later in the year is heartening.

But is it realistic?

If, as expected, the housing market bottoms out this summer, the economy would be poised for something of a comeback because the value of homes have shrunk to the point that once credit becomes available again, there will probably be a very substantial rebound.

But some analysts see no bottoming out of the housing market as long as there are so many at-risk loans out there as well as the contiued troubles in the mortgage security markets. Some estimates place the number of bad loans at more than 1 million - a problem that politicians are working to address with legislation helping homeowners on the brink working its way through Congress.

There are those who believe any such action by Congress will only skew the market and prolong the crisis. That remains to be seen. What is a certainty, however, is that the economy will play a much larger role in this election than in 2004.