Federal Reserve chief Ben Bernanke today called on governments to take "forceful" action to stem unending financial turmoil and immediately consider reforms to prevent another crisis. Describing the current financial turmoil as the worst since the Great Depression of the 1930s, he said until governments stabilised the financial system, "a sustainable economic recovery will remain out of reach". "In the near term, governments around the world must continue to take forceful and, when appropriate, co-ordinated actions to restore financial market functioning and the flow of credit," he told the Council on Foreign Relations, a think tank, in Washington.
Speaking ahead of a weekend meeting of the Group of 20 (G20) finance ministers and central bank chiefs in London, Mr Bernanke said while fighting the current crisis, policymakers should embrace reforms to the financial architecture that could help prevent a similar turmoil from developing in the future. "We must have a strategy that regulates the financial system as a whole, in a holistic way, not just its individual components," he said.
"In particular, strong and effective regulation and supervision of banking institutions, although necessary for reducing systemic risk, are not sufficient by themselves to achieve this aim." Financial turmoil stemming from a home mortgage meltdown in the United States has sent the US unemployment rate to a 25-year high, pushed stocks to 12 year lows and forced government bailouts of blue-chip companies in the world'a biggest economy.
The global economy could contract for the first time in 60 years in 2009, International Monetary Fund managing director Dominique Strauss-Kahn warned earlier today. Differences have also surfaced among world powers ahead of the G20 talks between key emerging and industrialised nations designed to co-ordinate the global response to the credit crunch. The White House on Monday denied a rift with Europe over whether economic stimulus or regulatory reform offers the best path to revival of the global economy.
Washington is pressing its transatlantic allies to emphasise stimulus. But the European Union has failed to forge a common approach, and some EU leaders led by France are pressing for a comprehensive rewrite of global regulation. *Agence France Presse