HOUSTON – The national oil and gas boom may have created a quarter of the jobs U.S. employers have added to payrolls since the economic downturn began six years ago, former Federal Reserve Chairman Ben Bernanke said Friday.
Closing out the massive IHS CERAWeek energy conference in downtown Houston, Bernanke said energy production also has greatly improved the U.S. trade imbalance as exports of refined fuels rise, and it has boosted the nation’s competitive position in the world.
“It has clearly been one of the most beneficial developments” in the U.S. since the financial crisis of 2008, he said. “Foreign companies are investing in the U.S. instead of jobs going out. I don’t want to overstate it, because the U.S. economy has a ways to go, but it’s one of the bright spots. We are in fact regaining our very strong position in energy production.”
On Friday, Bernanke revisited some of the most difficult trials of the past six years, from the failure of Lehman Bros. to scouting out wary buyers for distressed financial institutions during the crisis and pushing for unpopular government intervention in the financial system. In the financial crisis in 2008 and the economic recession that followed, the Federal Reserve “came full circle” to its original assignment, to help the U.S. financial system get out of major crises, he said.
It was Bernanke’s first public speaking appearance since his second term running the most powerful central bank in the world ended in January. Before a career in academia and the Fed, a young Bernanke had written a college thesis on natural gas price controls — he had been against it, he told the gathering of energy executives.
Out of the woods
Daniel Yergin, chairman of IHS and a Pulitzer prize winning author, asked the former Fed chairman to pinpoint the morning he woke up and realized the country was “out of the woods,” economically speaking.
“It hasn’t come yet,” Bernanke said with a laugh. Though he noted that the pace of U.S. job growth — the government reported Friday that the nation’s employers added 175,000 jobs in February – is encouraging. The recovery, he said, has been slow, but it is far removed from a time six years ago when housing prices collapsed and bad home loans decimated bank balance sheets.
On the rise: Jobs in oil and gas buck national employment trend
The U.S. financial system “is in much better shape than it was five years ago,” he said. The federal government has increased its oversight of the banking industry with massive legislation like Dodd-Frank. Basel III, an international legal structure that requires banks to keep more capital on their books, was implemented recently, he said.
And in 2009, the Fed began to see the financial system stabilize after it began stress-testing the nation’s largest banks against possible crisis scenarios. The transparency of those tests gave investors confidence in the banking system again, he said.
Developed nations like the U.S., countries in the Euro zone and Japan are all showing signs of improvement. U.S. investment levels have shrunk significantly since the recession, but signs indicate that it will move toward normal levels in 2014 and 2015.
With its huge economic pull on energy demand, China plays a central role in commodity pricing. Now, Bernanke said, Chinese leaders are attempting to transform the economy as it cools from 10 percent growth each to more sustainable levels. Essentially, he said, China needs to grow its consumption levels — saving money had always been a central component of its economy, he said.
The Federal Reserve began implementing new measures to deal with stresses to the U.S. financial system in August 2007, around the time Bernanke remembers he first began to see signs the national economy could be in trouble. Around that time, a massive financial institution, AIG, had been on the brink of collapse before a multimillion-capital infusion from the federal government.
That had been a tough decision, with plenty of downside, but for Bernanke, the stresses of the time didn’t register until later.
“You know, it’s interesting. My focus was on what we were doing, I wasn’t thinking about the implications,” he said. “It’s like getting in a car wreck. It’s only after you’re safe and sound that you realize that was a scary thing. But it was a very difficult period. Then best thing you could do is do what you have to do.”
The years taught Bernanke and other leaders a lot about financial regulation, he said. The government hadn’t been prepared to deal with the widespread economic impact that started in one sector of the economy. Before the financial crisis, the U.S. regulatory regime had been much more fragmented.
“No one was looking at the whole system,” he said. “We’re moving much more in that direction.”
And regulators learned not to be complacent, he said.
“We’ve seen what the downside is, and we need to avoid having short memories,” he said. “We need to make sure these lessons are learned.”
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