Dems thrilled by Bernanke comments

Congressional Democrats declared victory Monday after Federal Reserve Chairman Ben Bernanke offered measured support for a second economic stimulus measure.

Bernanke advocated no specific policy proposals for the stimulus, but in testimony to a House panel said that with the economy weak and facing a protracted downturn, “consideration of a fiscal package by the Congress at this juncture seems appropriate.”

{mosads}That was enough for Democratic leaders, who along with presidential candidate Sen. Barack Obama (D-Ill.) have been championing a possible $300 billion package made up of infrastructure spending, direct aid to states, unemployment insurance extensions and even direct tax rebate checks.

“Chairman Bernanke made it clear that a new economic recovery package is critical to boost our weakening economy,” House Speaker Nancy Pelosi (D-Calif.) said in a statement issued shortly after Bernanke concluded his testimony.

Yet Bernanke would not back any specific stimulus formulas, despite persistent attempts by committee Democrats — including Rep. Rosa DeLauro (D-Conn.), a member of Pelosi’s inner circle — to win a powerful endorsement from the Fed chairman.

Instead, Bernanke only stressed the importance of crafting a second stimulus measure in a way to ensure that its impact would be maximized, saying it was up to Congress to consider and work out the details.

“To best achieve its goals, any fiscal package should be structured so that its peak effects on aggregate spending and economic activity are felt when they are most needed, namely, during the period in which economic activity would otherwise be expected to be weak,” he stated.

Following Bernanke’s testimony, White House press secretary Dana Perino also voiced new openness for a stimulus. She said the administration is open to ideas on a stimulus, but also made clear that position was not a blanket endorsement of the ideas pitched by congressional Democrats so far.

House Republicans downplayed Perino’s comments, and emphasized Bernanke’s statement that a tax increase amid an economic slowdown should be avoided.

“House Republicans agree with Chairman Bernanke that action to strengthen our economy is needed, and it should come in the form of pro-growth policies that create new jobs, lower energy costs and protect taxpayers — not hundreds of billions in new government spending masquerading as ‘economic stimulus,’ ” Minority Leader John Boehner (R-Ohio) said in a statement.

Bernanke hedged on whether infrastructure spending would stimulate the economy in the near term, but did not dismiss the idea.

“Infrastructure is a form of capital — it pays a return if well-invested, and that’s a good thing for the economy,” he said. “There is a separate issue here, though, which is will it stimulate the economy in the near term? And there the question really turns on how much extra spending and employment will you get from infrastructure projects that you would not have otherwise had. And the concern usually is that infrastructure projects usually take a long time to plan and develop … so the actual implications for the near term are limited.”

And Bernanke also sounded something of a cautionary note on proposals to inject billions of dollars into individual states — 36 of which currently have budget deficits — and local governments, saying any help needs to be in the form of money that they will spend.

“You don’t want it going into their rainy-day funds,” Bernake said.

He also sidestepped questions about the validity of direct tax cuts to stimulate the economy. Republicans have proposed cuts to the capital gains tax rate as the backbone of their stimulus plans.

And while he urged caution, Bernanke did not reject outright adding significantly to the already $750 billion budget deficit to further shore up the economy.

While calling an addition of hundreds of billions to the deficit “not totally inappropriate and not totally avoidable,” Bernanke reminded members of Congress of the dangers of spending recklessly.

“One of the reasons that economists argue for conservative fiscal management is that precisely when times like this come around, you want to have the capacity and the scope necessary to deal with the problem,” he said.

In response to questions about the overall economy, though, Bernanke spoke plainly and directly. And the picture he painted was bleak.

“We are in a serious slowdown in the economy, which has very serious consequences for the public, and whether it’s called a recession or not is of no consequence,” he said.