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Private sector pivotal to recovery, official says

By Marilyn Miller
Beacon Journal staff writer

Published on Saturday, Nov 15, 2008

The turmoil in the financial markets is affecting many sectors of the regional and national economy and there is a ripple effect, said Bath resident Sandra Pianalto, chief executive and president of the Federal Reserve Bank of Cleveland.

''The information I have been looking at tells me that the economy is now in a recession,'' Pianalto said in a speech Friday at the City Club of Cleveland.

''At the moment, the signs point to a recession beyond just a 'garden variety downturn.' The length and severity of the recession will depend on how quickly credit markets return to normal.''

She said the worsening conditions in financial markets during the year have changed her outlook. Her economic forecast had called for a slowdown, but
not a recession.

The most recent report on the gross domestic product for the third quarter of 2008 showed a 0.3 percent decline, as opposed to a 2.8 percent increase during the second quarter. A recession is broadly defined as two consecutive quarters of negative growth.

Jobless rate rising

Nationally, employment has been declining all year, and the most recent figures, for September, were the worst in 14 years. She said manufacturing has been following a similar course and retailers are posting weak sales.

On Friday, the Commerce Department reported the fourth consecutive month of retail sales declines.

''The financial stress is raising the cost of credit, restricting the availability of credit and inducing cautious behavior by borrowers and lenders,'' Pianalto said. ''All of this is reducing spending by both businesses and consumers. State and local government finances are being affected as well.''

She said many people talk about Wall Street versus Main Street ''as if there were a giant wall dividing the two. In reality, the two work together — these are the nuts and bolts of finance and commerce that touch our everyday lives.''

Normally the Federal Reserve lends only to banks, Pianalto said, but as the financial turmoil spread, the Federal Reserve had to use its emergency powers to deal with problems of financial firms such as Bear Stearns and AIG. The Fed also has been involved in loans to securities dealers who are critically important to the functioning of credit markets.

Fed taking action

''We have done more than cut interest rates. To address liquidity issues in the commercial banking sector, the Federal Reserve has used its traditional lending authority in creative ways,'' she said. ''We have extended credit to banks in significant amounts and for longer periods than is typical. Currently, we have roughly $500 billion outstanding in these loans, versus about $300 billion a year ago.''

Pianalto said there is evidence in some financial markets, such as inter-bank lending and commercial paper, that progress is being made. She said the focus must be on the factors that caused the turmoil: lax underwriting standards, complex financial products and excessive debt.

The Federal Reserve has tightened regulations that apply to mortgage loan products and underwriting standards.

''Our role first and foremost is to provide a safe economic environment . . . not to allow inflation to get too high or too low.''

Signs of normalcy

She said there are some signs of normalcy that she is looking for to determine when financial markets are back on solid ground.

First, banks must begin lending to one another and credit markets must operate without extraordinary involvement from the Federal Reserve and the Treasury. She emphasized how the private sector's role is pivotal to a recovery of the financial markets.

Second, home prices must stabilize. She said the downturn in the housing market was the catalyst in driving the volatility in the broader economy and in freezing credit markets. She is looking for housing prices to reach a bottom.

Third, today's extremely low trading volume in the private markets for mortgages, student loans and auto loans must pick up, as confidence in pricing of these assets is slowly restored.

She said consumer confidence, which by some accounts is at historic lows since the 1960s, is the foundation of every financial system.

Fed chief in Germany

Separately on Friday, Federal Reserve Chairman Ben Bernanke pledged to work closely with other nations' central banks to fix global financial problems attributed to the volatile financial markets. He spoke to a central banking conference in Frankfurt, Germany, warning his listeners of the many challenges that remain to turn things around.

He hinted at lowering interest rates again. The Fed's key rate is now at 1 percent. In response to that, Pianalto said Bernanke is ''keeping his options open.''

Pianalto said the principal resources the country has to work with are: ''Our people, our business enterprises, and our ingenuity. As we struggle to repair our financial system, we should not lose confidence in the forces that have worked to our advantage throughout our history.''

Marilyn Miller can be reached at 330-996-3098 or mmiller@thebeaconjournal.com.

The turmoil in the financial markets is affecting many sectors of the regional and national economy and there is a ripple effect, said Bath resident Sandra Pianalto, chief executive and president of the Federal Reserve Bank of Cleveland.

Get the full article here.


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Loren Eberly
Orrville, Oh

Posted 06:41 PM, 11/15/2008

Fed demand Fathers disqualified for affirmative action with white skin, Union workers, consumers, taxpayers, and Americas grandchildren, low-income workers, volunteers without wages, and nonunion parasites willing to work for fewer wages than they can afford life. Pay interest on their American Dream for 30 years, Pay interest on credit card debt, and pay for the more stock dividends (money) OPEC nations and Enron stockholders, Investors and stockholders in the Illegal Drug Business, Business owners stockholders, Financial Institutions investors and stockholders, Bulls on Wall Street, Hillarys, Wal-Mart stockholders, and foreign and domestic investors (money marketers) market quarterly. In the wholesale and retail price of every product and service Human Beings use for life. That gets only product or service. With money derived from wages or independent business profit. To measure and maintain the strength and growth of this unaffordable economy and prove that only money that can only be used to identify agreed value of sellers and buyers in the marketplace has value? Makes the American Dream and life UNAFFORDABLE!
http://www.loreneberly.com
















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