Ben Bernanke, U.S. Federal Reserve Bank Chairman has admitted that foreclosures, unemployment and diminished lending to small business is creating problems that remind him of the 1930 recession.

“We’re not out of the woods yet,” he said, in a speech in Dallas yesterday. “While things may be starting to turn the corner, America still faces problems in both the employment and housing sectors.”

Bernanke’s comments are reminiscent of Reserve Bank concerns last month that these ongoing problems were affecting consumer spending too – we can expect interest to remain low for a while longer as the Bank tries to kick-start the economy. “Although things have stabilized and there are signs of renewed economic growth,” Bernanke added, “we can hardly be happy with a 10% unemployment rate.”

New York Fed President William Dudley independently echoed Bernanke’s thoughts yesterday at the Economic Club of New York when he said that the benchmark rate should remain low for an “extended period” to ease America into sustained economic recovery.

This was bad news on top of information released by the Fed last month that consumer credit was continuing to decline. The markets reacted accordingly: Standard and poor dropped 0.8%, while Treasuries rose; pushing the yield on 10 year securities down nine basis points.

Dudley went on to express the opinion that weak bank lending was stifling small business’ ability to expand and re-hire staff. Although the Fed completed plans last week to buy $1.23 trillion mortgage-backed securities and $175 million federal agency debt, Bernanke is still waiting to see evidence of recovery in the housing market. Sub-prime and prime delinquencies remain on the increase and foreclosures are on the up. The commercial sector also remains troubled.

But, for Bernanke, the job market is still the toughest nut to crack. Even though employers added 162,000 jobs during March, unemployment held steady at 9.7% which is close to a 26 year high. He is especially concerned that 40% of those affected have been out of work for at least 6 months, which is eroding skills and future prospects further.

His take on the employment market is that the Fed’s stimulative monetary policy should gradually bring unemployment down during 2010, because inflation appears to be well controlled and price expectations have stabilized. Bernanke repeated his call for long term reining-in of federal budget deficits, stating that it was time to start working on a “viable plan.”

The Fed knows all too well that fiscal responsibility is critical to financial stability and sustained economic growth – Obama’s administration has conceded that budget deficits will top $5.1 trillion over the next 5 years of which 2010 will contribute a whopping $1.6 trillion.

It’s time America woke up and started living within its budget as it expects its cash-strapped citizens to do.

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