Bernanke: Obama stimulus would lift economy

Some Americans and some on Capitol Hill have been upset about Treasury’s management of the $700 billion program, which has provided aid to financial companies and others on Wall Street — some of whom are blamed for getting the country into economic the mess in the first place — while other struggling industries get little or no assistance.

Bernanke said he understands this concern, but added: “This disparate treatment, unappealing as it is, appears unavoidable.”

The United States’ economic system is critically dependent on the free-flow of credit, Bernanke said. It is like the economy’s oxygen. As it has been cut off, the economy has sunk deeper into recession, taking Americans’ jobs with it.

Washington policymakers, Bernanke said, “must therefore do what they can to communicate to their constituencies why financial stabilization is essential for economic recovery and is therefore in the broader public interest.”

Additional efforts to stem skyrocketing home foreclosures could strengthen the collapsed housing market, which in turn would buttress financial stability, Bernanke said. Obama also wants to see more done to curb foreclosures.

To cushion fallout from the recession, the Fed in December slashed its key rate to an all-time low of between zero and 0.25 percent. The Fed signaled that it would keep rates at that level for some time and pledged to use unconventional tools to revive the economy. One such tool Bernanke again mentioned is the possibility of the Fed buying longer-term Treasury securities.

The central bank will meet later this month to assess economic and financial conditions.

Even as the U.S. battles the current crisis, it must move to prevent future ones. To be effective, international cooperation is needed, Bernanke said.

“A clear lesson of the recent period is that the world is too interconnected for nations to go it alone in their economic, financial and regulatory policies,” Bernanke said. “International cooperation is thus essential if we are to address the crisis successfully and provide the basis for a healthy, sustained recovery.”

In time, the global economy will recover from the current crisis, “but the timing and strength of the recovery are highly uncertain,” he added.

Bernanke, who earlier Tuesday met with British Prime Minister Gordon Brown and Bank of England Governor Mervyn King, said he expects to see “continued weakness” in the U.S. jobs market in the first quarter of this year. The unemployment rate bolted to a 16-year high of 7.2 percent in December. For all of last year, 2.6 million jobs disappeared, the most since World War II.

“We are certainly in a very bad stage of contraction as far as employment is concerned,” he said.

However, he was hopeful of seeing some stabilization in the U.S. economy later in 2009, depending on factors like improvements in the credit market. “It isn’t rapid growth, but a stabilization and a stop to the bleeding in some sense,” he said.

More on Bernanke |  Stimulus

Also in msnbc.com business Your Career: Married to the job, and each other Answer Desk: Qualifying for more jobless benefits Venza sorta-crossover is Toyota’s latest mistake ConsumerMan: Chinese drywall remains a big threat   Video: This beer would cost you at least $8,000

MORE FROM ECONOMY IN TURMOIL

Economy in Turmoil Section Front

Obama administration faults Senate bank bill Warren Buffett: Financial panic is over Pay czar concerned firms could lose talent U.S. banks to prepay $45 billion to FDIC Geithner encouraged by policies in Asia World Bank: Job losses threaten U.S. economy Weak recovery won’t spur jobs, Fed warns Senate Democrats move to curb Fed’s powers Stimulus watch: Pay raise counted as saved job Banks face Feb. 1 deadline on compensation Economy in Turmoil Section Front   Add Economy in Turmoil headlines to your news reader: