| Federal Reserve Chairman Ben Bernanke, testifying before Congress for a second day Wednesday, says unemployment threatens to undercut the U.S. recovery. SAVE MONEY ON TRAVEL DEALS The unemployment rate, at a 26-year high of 9.5 percent, will likely rise to 9.8 percent to 10.1 percent by December, the Fed says. If unemployment continues to rise as steeply as it has, the current gradual recovery could "prove transient", Bernanke told the House Financial Services Committee a day before Wednesday's Senate Banking Committee testimony. And the unemployment increase could put the kibosh on the Fed projection the U.S. economy will grow again by year end and expand at a modest 2.1 percent to 3.3 percent next year, he said. Rising unemployment could also push the already dramatic rise in home-mortgage defaults and foreclosures higher still, Bernanke said. Foreclosures and resulting drops in home values and sustained tight credit, combined with job insecurity, "is likely to limit gains in consumer spending", Bernanke testified. With consumer spending -- which accounts for some 70 percent of the U.S. economy -- impaired, a dragged down economy could also increase commercial real estate defaults. Such defaults are already rising, Bernanke said, describing the phenomenon as an unwinding that is beginning to threaten some lenders and may require government assistance. "It is a sector we are paying a lot of attention to", Bernanke said. But he testified because commercial mortgages are a relatively small market, "I don't think we need to have an enormous program to stimulate improvement." Trends Research Institute Director Gerald Celente, who forecast the subprime mortgage financial crisis and the U.S. dollar's decline in 2006, says otherwise. He predicts the defaults will turn into a commercial real estate collapse that will "dwarf the subprime problem." Bernanke told lawmakers Tuesday despite naysayers, the government's fiscal stimulus was a good thing. If it "did not exist, unemployment would be higher", he said. He also suggested the $787 billion scheduled to be spent this year and next might not be enough. Economists say it could take years to work down a 10 percent or higher unemployment rate to a more acceptable level of, perhaps, 5 percent. Wages are likely to be anemic too, they say, considering how tough the competition will be among laid-off workers for jobs, BusinessWeek reported. Income inequality could worsen. In the face of such prospects, Bernanke will testify for a second day on how the Federal Reserve System, which has recently taken some of the most interventionist and controversial actions since the central bank's founding in 1913, hopes to guide the U.S. economy safely through the crisis. Indeed, growing numbers of economists and other researchers say the current financial crisis cannot be isolated from other potential moments of truth. These include the threat of rapid global climate change, the beginning of the end of the petroleum era, unprecedented food prices and the growing possibility of wild-card events such as a bird flu pandemic. Ahead of Bernanke's second day of testimony, Asian stock markets closed mixed Wednesday and European stocks were lower around midday. Japan's Nikkei 225 stock index was up 71.14 points, or 0.74 percent, to close at 6,723.15. Hong Kong's Hang Seng index fell 253.56 points, or 1.3 percent, at 19,248.17. China's SSE or Shanghai index climbed 83.41 points, or 2.6 percent, at 3,296.62. Britain's FTSE 100 was down 5.89 points, or 0.13 percent, to 4,475.28. Germany's DAX was down 14.38 points, or 0.28 percent, to 5,079.59. France's CAC-40 fell 19.31 points, or 0.58 percent, to 3,283.58. - - - - - - - - - - - - - - - - - - - -
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