Bernanke, Bush Disagree on Economic Outlook

July 15, 2008 9:02:54 PM PDT
President George W. Bush offered reassurances on Tuesday that the United States economy is "basically sound," and not about to collapse.

The stock market had fallen almost 200 points when he made his remarks. The Dow Industrials closed below 11,000. It was a loss of 92 at the end of the trading day.

Freddie Mac and Fannie Mae, the two government-backed mortgage giants, lost another quarter of their value Tuesday and the President acknowledged it's been a difficult time for many families.

The President is trying to put the best face he can on the economy, but as he spoke Tuesday morning, his Federal chairman was testifying before Congress and painting a much darker picture.

In a gloomy presentation to the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke outlined the current difficulties.

"Including ongoing strains on financial markets, declining house prices, a softening labor market and rising prices of oil food and some other commodities," said Bernanke.

And then said in the short term the future doesn't look much better.

"The possibility of high energy prices, tighter credit conditions, and a still deeper contraction in housing markets, all represent significant downside risks to the outlook for growth," said Bernanke.

A few blocks away at the White House, President Bush tried to emphasis the positive.

"Bottom line is this we're going through a tough time, but our economy is growing, consumers are spending, exports continue increasing and American productivity remains strong," said President Bush.

Stanford University's Hoover Institution Economist Michael Boskin Ph.D. was the chairman of the President's Council of Economic Advisors under the first President Bush.

"Well I think the economy is quite soft. The economy is growing but very, very slowly," said Boskin.

Boskin expects the economy to slow down later this year, but he cautions against government bailouts of the mortgage crisis.

"Because if the Congress is going to come around and pass laws that change the terms of everything, investors are going to be very leery about getting back involved with mortgages in the future," said Boskin.

Boskin says the economy will suffer this year, and the first of next year, and then we could see some improvement.

U.C. Berkeley Economist Robert Reich Ph.D. was Labor Secretary under President Clinton.

"This unfortunately is the worst economy we've seen in 30 years. Oil prices soaring, food prices soaring," said Reich.

And Reich doesn't believe it'll get better soon.

"The biggest underlying problem is consumers haven't had a raise in years," said Reich.

Reich says the housing bubble masked that problem for a while, but now that home values are declining in value, the middle class has lost its purchasing power.

"In an economy as unequal as ours when you have concentrated wealth and income of a sort we haven't seen in this country for over 100 years, it's a small wonder we are going to have to face the day of reckoning and that is happening right now," said Reich.

It's not unusual for economists to disagree. It is worth noting that a record number of the rest of the country does agree that America is in economic trouble. ABC's weekly survey of consumer confidence shows economic pessimism is at an all time high. 78 percent of Americans say the economy is getting worse. That is the highest percentage since they started taking the survey 27 years ago.


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