A wide majority of Americans view the economy as the number one issue of the Presidential campaign. Federal Reserve Chairman Ben Bernanke testified today before the Joint Economic Committee of Congress and from his remarks, the voters are right and the economy is indeed in need of a great deal of help.

The Committee Chairman, Senator Charles Schumer D-NY put some pointed questions to Chairman Bernake right off the bat. While praising the Chairman for talking action to rescue Bear Stearns he also asked just how far in advance Chairman Bernake knew of the situation, where was the SEC, did they make the deal on a ad hoc basis, do they plan to make rules that will stipulate when to take this type of action in the future, and will they be more vigilant in the future. He also posed questions about the housing crisis and called for changes to the regulations regarding our financial system.

In his response, the Chairman, while saying that he believes the situation is a bit more stable, pointed out the fact that the financial markets are still under a good deal of stress. Unable to get credit, leveraged investors have divested themselves of their holdings. He also mentioned that due to the fact that financial and government institutions have suffered losses to the degree that they do not have the funds available to lend. Even municipal bonds and student loans are suffering.

In regards to the housing market he commented that construction of new single family homes dropped an addition 7% in the month of February. This brings the total drop in new housing, since 2006 to a whopping 60%. One reason for the decline in new house construction is the fact that the contractors have a huge inventory of unsold homes. Of course, this trickles down to less jobs in the construction industry. As a matter of fact, the loss of construction jobs was the biggest factor in the loss of 101,000 jobs in February- and this was an improvement. The chairman also mentioned retail, business services and manufacturing as having employment losses. Not only that, but employers are scaling back on their new hires. The Chairman expects the un employment rate to rise in the coming months. One statistic that reflects the loses in the retail field is the fact that disposable income has increased by just 1%. He does expect the tax rebates to help a bit.

When it comes to inflation, the price index for personal goods rose 3.4%, although he does say he expects inflation to start leveling off in the coming months.

All of this points to one thing-recession. The Chairman does not deny that a recession is where we are heading, but he does state that he believes the economy has the ability to bounce back. The Administration does have a plan,which will for sure take some changes when it gets to Congress. Whether or not changes will be made in this session of Congress is another story.

Further reading:

Federal Reserves Power Grab

Which Candidate Has the Best Plan for the Economy?

Voters Say Economy Most Important Issue