WASHINGTON Europe has a debt crisis. America has a jobs crisis. Corporate profits could be in trouble. World financial markets are in turmoil. And no one seems prepared to ride to the rescue.
Federal Reserve Chairman Ben Bernanke bluntly warned Congress on Tuesday of what most of America has sensed for some time: The economic recovery, such as it is, is close to faltering.
The central bank chief spoke on a day when the stock market spent most of the trading hours in bear market territory down 20 percent from its most recent highs in April. A late-day rally helped the market finish higher.
Bernankes exchange with lawmakers seemed to capture the growing belief that no one is prepared to help the global economy in any meaningful way anytime soon. Speaking in unusually frank terms, he also captured the nations sour economic mood.
The Fed chief was asked about protests around Wall Street, which went on for an 18th day as demonstrators railed against corporate greed and expressed frustration about the economy.
Bernanke replied: I think people are quite unhappy with the state of the economy and whats happening.
They blame, with some justification, the problems in the financial sector for getting us into this mess. And theyre dissatisfied with the policy response here in Washington. And at some level, I cant blame them.
Certainly, 9 percent unemployment and very slow growth is not a very good situation, he added. Thats why they are protesting.
Throughout the day, traders and U.S. policymakers kept one eye on Europe, where a debt crisis has dragged on more than a year. Investors worry that a messy default by Greece could hurt European banks and their American counterparts.
On Tuesday, the Greek finance minister said the nation has enough money to pay pensions, salaries and bondholders through the middle of next month and that was seen as good news. Bernanke told Congress there was little the Fed could do about Europes problems.
Unfortunately, we are innocent bystanders here, he said. I am persuaded they are aware of the risks.
Bernanke said he believes the Feds latest move to help the economy would be meaningful but not an enormous support for the economy. The program, known as Operation Twist, is designed to lower long-term interest rates so people and businesses will spend more money.
It should help, somewhat, on job creation and growth, the Fed chief told Congress. Its particularly important now that the economy is close, the recovery is close to faltering.
We need to make sure that the recovery continues and doesnt drop back and that the unemployment rate continues to fall, he added.
The Fed has used most of its tools to help the economy. It said this summer that it expects to keep interest rates super-low into 2013. Congress is inclined to cut, not raise, spending. Europe is resisting bold steps to save its most troubled economies. And fears are rising that a recession is on the verge of seizing Europe and eventually spreading around the world.
We have already taken interest rates down to zero ... and this Congress doesnt seem to be able to do anything, said David Wyss, former chief economist at Standard & Poors. So not much good is going to happen.
Investors seem to think so. Stocks sank early Tuesday on fears about Europe, before rising in late morning on Bernankes suggestion that the Fed might be open to doing more to help.
Then they tumbled again in the afternoon, only to surge in the final 30 minutes of trading on a report that European leaders might be working on a plan to prop up banks there.
The Standard & Poors 500 index finished the day up 2.3 percent at 1,123.95, or about 33 points above what would be considered bear market territory.
Economists at Goldman Sachs forecast in a note this week that Europe could fall into recession by winter. That would push the U.S. economy to the edge of recession by early 2012, said Andrew Tilton, an economist with the firm.
Even if a global recession can be avoided, the U.S. economy faces a bleak outlook. Some economists fear that Congress could worsen things by cutting taxes or raising taxes this year or next.
Tilton forecasts overall economic growth of just 1.7 percent this year, followed by a scant 0.5 percent annual rate in the first three months of next year. For all of 2012, he projects 1.4 percent growth. Normal growth is more like 3 percent.
European finance ministers suggested Tuesday that holders of Greek debt might have to absorb larger losses than originally thought. Banks that hold Greek bonds would suffer. A recession in Europe would also hurt U.S. exports to the region, damaging corporate profits at home.
Still, Wyss said, Policy seems to be as frozen there as it is in Washington.
U.S. lawmakers have their own challenges with debt.
Congress is intent on cutting spending over the next several years. At the same time, Congress might let a Social Security tax cut expire at years end. Income tax cuts could expire in 2012.
Based on those assumptions, economists at Bank of America Merrill Lynch expect growth below 2 percent this year, next year and in 2013.
For most Americans, such weak expansion would feel like a recession.
And it wouldnt reduce chronically high unemployment. The nonpartisan Congressional Budget Office said last month that the unemployment rate will remain near 9 percent through the end of 2012.
In his testimony, Bernanke said the Fed is prepared to support the economy. But he made clear that the Feds efforts to force down long-term interest rates are no panacea for the problems currently faced by the U.S. economy.
Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector, Bernanke said.
Yet there is little likelihood of significant help from Congress.
President Barack Obamas $447 billion job-creation bill has run into resistance from Republicans and even some Democrats in Congress. House Majority Leader Eric Cantor says the Republican-led House wont vote on Obamas plan in its entirety.
Cantor said that while Republicans could back portions of the presidents plan, this all-or-nothing approach is unreasonable.
Obama is sharpening his strategy to blame Republican lawmakers if the bill, or at least a significant portion of it, doesnt pass by years end.
The Fed may not be able or willing to adopt further stimulus. David Jones, chief economist at DMJ Advisors, a Denver consulting firm, said the Fed could decide at its policy meeting next month to take no further steps, especially because its past two policy decisions drew an unusually high three dissenting votes.
The dissenters have opposed the Feds continuing efforts to force long-term rates ever lower. They worry about the risk of inflation and shrinking interest income for retirees and other savers.