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Frank Statement on Bernanke’s Testimony on the Recovery Act’s Positive Effects

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Washington, DC, July 22, 2009 | comments

Financial Services Committee Chairman Barney Frank (D-MA) today made the following statement highlighting several parts of the Federal Reserve’s semiannual Monetary Policy Report and Chairman Bernanke’s testimony indicating that the Recovery Act has had positive effects on the economy for American workers.  Bernanke was appointed Chairman of the Board of Governors of the Federal Reserve by President Bush in 2006 and previously served as Chairman of President Bush’s Council of Economic Advisors.

     Chairman Frank said:

     “Chairman Bernanke yesterday made several positive comments regarding the American Recovery and Reinvestment Act that has come under criticism from the Republicans.  In fact, Chairman Bernanke stated several times yesterday that the recovery plan is having a positive impact in America. Consider the following:

  • In response to a question by Rep. Randy Neugebauer (R-TX), Chairman Bernanke said: ‘Our forecasts are based on our best projections of what government spending is likely to be and in particular it includes the fiscal stimulus package…‘…If the fiscal stimulus package didn’t exist for example, we would anticipate that there would be higher unemployment.’[Hearing transcript (unofficial), July 21, 2009] 
     
  • ‘Consumer spending—which has been supported recently by the boost to disposable income from the tax cuts and increases in various benefit payments that were implemented as part of the 2009 fiscal stimulus package—appears to be holding reasonably steady so far this year.’  [Monetary Policy Report to Congress, July 21, 2009, page 1] 
     
  • ‘Interest rates on long-term municipal bonds declined in April as investors’ concerns about the credit quality of municipal bonds appeared to ease somewhat with the passage of the fiscal stimulus plan, which included a substantial increase in the amount of federal grants to state and localities.’ [Monetary Policy Report to Congress, July 21, 2009, page 13] 
     
  • ‘That bill also aided the finances of state and local governments by establishing Build America Bonds, taxable state and local government bonds whose interest payments are subsidized by the Treasury at a 35 percent rate.’ [Monetary Policy Report to Congress, July 21, 2009, page 13 ] 

     “It is important to note that the impact on state and local governments would have been even greater had the three Republican Senators whose votes were necessary to pass this in the Senate not insisted on reducing the amount that went to states by $25 billion from the House-passed bill.

     “Finally, the Federal Reserve’s Monetary Policy Report to Congress contains an encouraging explanation of the country’s unemployment rate. Chairman Bernanke said that the Federal Reserve’s staff calculated that the unemployment rate would be a full half-percent lower because more Americans would have given up looking for full-time employment and, therefore, would not be counted as a part of the labor force.  Simply said, the unemployment insurance programs passed by Congressional Democrats are encouraging people to seek employment rather than give up.  In fact, the report states:

     ‘The emergency unemployment insurance programs that were introduced last July have likely contributed to the higher participation rate and unemployment rate by encouraging unemployed individuals to remain in the labor force to continue to look for work to states and localities’ [Monetary Policy Report to Congress, July 21, 2009, page 16]

     “The Republican argument is that unemployment compensation is bad because people get it and they stop looking for work. Chairman Bernanke says exactly the opposite – it keeps them looking for work so more people stayed in the labor market. That means the labor force is larger relative to the total number of jobs – ironically raising the unemployment rate.”

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