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European crisis is a wake-up call for US, Bullard says

European crisis is a wake-up call for US, Bullard says

This undated image courtesy of the US Fe

This undated image courtesy of the US Federal Reserve Bank of St. Louis shows President and CEO James Bullard. The United States is in peril of "Japanese-style" deflation like that seen in the Asian giant's "lost decade," top Federal Reserve official Bullard said July 29, 2010. Bullard, who votes on the interest rate-setting Federal Open Market Committee, said US authorities should consider restarting crisis-era purchases of government debt to boost economic activity and avoid that fate. AFP PHOTO/HO/US Federal Reserve Bank of St. Louis (Photo credit should read HO/AFP/Getty Images)(Photo Credit should Read /AFP/Getty Images)

The European debt crisis probably won't sink the US economy, but policymakers on this side of the Atlantic should pay close attention to it, St. Louis Federal Reserve Bank President James Bullard said today. At a breakfast sponsored by the CFA Society of St. Louis and other organizations, Bullard said:

The European sovereign debt situation is an absolute wake-up call for the US. You are vulnerable, even if you are a big country with a long-time reputation in capital markets.

You can read that as a call for Congress' supercommittee to get serious about long-term deficit reduction. In response to a question about budget deficits, Bullard compared a business trying to make investment decisions to a grocery shopper who knows the checkout line he chooses will probably be the slowest one:

People can't tell where taxes would be levied 5 years or 10 years or 15 years from now, so they're not going to invest. ... I (the business person) can see that Congress is going to be forced to raise taxes in the future, and (assume that) what they're going to do is put them all on me or on my business.

For now, though, Bullard says it looks like the US will avoid a double-dip recession:

The basic prediction should be slow growth now, better in 2012, with some risk that something bad could happen.

If Europe degenerates into a full-blown financial panic, he said, the Fed stands ready to step in with liquidity measures similar to those it employed in 2008 and 2009:

There's nothing that would stop us from using those again, if we got into a situation like in late 2008 .... I don't think we're at that stage yet.




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