Former Fed Chairman Ben Bernanke.Former Fed Chairman Ben Bernanke.

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Former Federal Reserve Board Chairman BenBernanke is calling on Congress to provide a new aid package thatprovides "significantly" more money to state and local governmentsthan the $150 billion allotted in the Coronavirus Aid, Relief, andEconomic Security (CARES) Act—plus aid for the unemployed and thepublic healthcare system.

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In an op-ed in today's New York Times, Bernanke, whooversaw the central bank's $4 trillion response to the GreatRecession of 2007–2009, notes that today's unemployment rate ismuch higher than the 10 percent peak reached during the GreatRecession, and that state and local government budget shortfallsare much greater. 

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Those gaps "cannot be closed byausterity alone," writes Bernanke, who is a member of New JerseyGov. Phil Murphy's Restart and Recovery Commission, where he'shelping to develop an effective reopening strategy that can supportthe state's economy and address the "glaring inequities thepandemic has revealed." 

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New Jersey is facing a revenueshortfall of billions of dollars because revenues are falling whilespending for healthcare, unemployment payments, and otherexpenditures is rising. 

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"Multiply New Jersey's problemsto reflect the experiences of 50 state governments and thousands oflocal governments, and the result, without more help from Congress,could be a significantly worse and protracted recession," writesBernanke. Since February, state and local governments collectivelyhave laid off nearly 1.5 million workers, according toBernanke.

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"Congress must act decisively—andit must act in ways that don't repeat mistakes of the recent past,during the Great Recession," writes Bernanke, referring to thestate and local budget cuts that slowed the recoverythen.

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The federal government hasalready provided about $3.6 trillion in emergency economic aid thisyear, but much of the assistance to states included "tightrestrictions," according to Bernanke. State and local governmentscannot use the funds to offset deficits, forcing them to reducespending at a time when demand for services is greater and to layoff workers, which further slows the economy, Bernankewrites.

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Since March, Congress hasn't beenable to agree on a new aid package. Two months ago, the DemocraticHouse passed a $3 trillion Heroes Act, which would provideadditional aid to state and local governments, households, andsmall businesses and extend federal unemploymentassistance.

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The Republican Senatecould unveil its nextfinancial aid package next week, according to Majority Leader MitchMcConnell, R-Ky.

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From: ThinkAdvisor

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Bernice Napach

Bernice Napach is a senior writer at ThinkAdvisor covering financial markets and asset managers, robo-advisors, college planning and retirement issues. She has worked at Yahoo Finance, Bloomberg TV, CNBC, Reuters, Investor's Business Daily and The Bond Buyer and has written articles for The New York Times, TheStreet.com, The Star-Ledger, The Record, Variety and Worth magazine. Bernice has a Bachelor of Science in Social Welfare from SUNY at Stony Brook.