Yesterday, the Joint Economic Committee (JEC) held a hearing on the current condition of the economy and the outlook going forward. In her opening statement, JEC Chairman Maloney noted that there were “glimmers of hope” in the economy. Specifically, although recent reports noted that GDP fell at an annual rate of 6.1 percent, other reports have indicated that consumer confidence increased over the last month and that the credit markets are beginning to loosen.
Christina Romer, Chair of the Council of Economic Advisors, was the only witness to appear. Her testimony discussed the causes of the current financial markets. She stated that the extreme decline in housing and stock prices eliminated a great deal of consumer wealth. Additionally, volatility in prices has created consumer uncertainty and further reduced consumer confidence in the market. Ms. Romer also stated that the decline in asset prices and increasing uncertainty was responsible for the tightening of the credit market. She then went on to discuss the four critical elements necessary to bring about recovery: (i) direct fiscal stimulus through the government directly promoting spending; (ii) stabilization and rescue of the financial industry to restart the flow of credit; (iii) addressing the housing crisis by reducing foreclosures and declining home values; and (iv) beginning the process of looking forward to address long-run economic problems.
When asked how close the economy came to a total financial meltdown, Ms. Romer stated that she believed “we were on the verge of financial collapse” and “could have seen just an incredible meltdown.” Looking forward, however, Ms. Romer stated that she expects “that the pace of the overall decline in the economy to moderate sharply over the next several months.”