captioning sponsored by wpbt >> as an expert on the causes of the great depression, i'm sure ben never imagined that he would be part of a team responsible for preventing another. but because of his background, his temperament, his courage, and his creativity, that's exactly what he has helped to achieve, and that is why i am reappointing him to another term as chairman of the federal reserve. >> susie: it will be take two for ben bernanke.

we talk about his reappointment and what's next for the central bank. our guests, former fed governor laurence meyer and fed watcher david jones. >> paul: what's another 2- trillion? the white house revises its ten- year deficit forecast to %9 trillion. but servicing all that debt will be a costly proposition. >> susie: a new report shows that consumers are feeling more confident about the economy. and that could mean more open wallets. but analysts say american retailers are still adjusting to a "new normal". >> paul: i'm paul kangas. >> susie: and i'm susie gharib. this is "nightly business report" for tuesday, august 25. "nightly business report" "nightly business report" is made possible by: this program was made possible

by contributions to your pbs station from viewers like you. thank you. >> susie: good evening, everyone. president obama gave ben bernanke a vote of confidence today, nominating him to a second term as chairman of the federal reserve. speaking from martha's vineyard, where he is vacationing, the president praised bernanke for his "calm and wisdom" and "bold action" in rescuing the u.s. economy. bernanke's current term at the fed ends in january. his nomination still needs to be confirmed by congress. but today, the fed chairman promised to continue work to restore stability in the economy and the markets. >> we have been bold or deliberate as circumstances demanded but our objective remains constant, to restore a more stable financial and economic environment in which opportunity can again flourish

and in which americans' hard work and creativity can receive their proper rewards. >> susie: joining us now with more on bernanke, laurence meyer, former fed governor and now vice chairman, macroeconomic advisers and david jones, c.e.o. of d.m.j. advisors and author of "unlocking the secrets of the fed". test. >> good evening. >> larry, let me begin with you. you support the bernanke renomination. tell us why. >> yes, unquestionably. the first issue you have to decide on, whether you think he deserves to be reappointed. that's a question of how good a job he's done as chairman. i believe he's done an exceptional job during extraordinary times. he's been aggressive and creative. and put in place a set of policies that pulled the economy back from the edge of an abyss, and it set the foundation for at least positive growth, although

subdued growth in the quarters ahead. >> susie: david, do you agree with larry? did president obama do the right thing by renominating ben bernanke? >> without question. the renomination bernanke was a key decision by the president. well-deserved as larry suggests. we had a difficult test situation for a new fed chairman, mainly with academic experience. the good news was he had studied the great depression as an academic as the president alluded to. i don't think he ever thought he'd be in a position where he was trying to keep the economy out of another great depression, but he's really done a good job. he has been bold. he's used imagination. he's used both conventional fed tools in terms of rate cuts, but he's moved out into an area we'd never seen before in unconventional policies, buying securities in order to push down mortgage rates and lower

longer-term borrowing costs for households and businesses. really been a remarkable record. >> susie: let me ask both this, because even his supporters criticize bernanke, that he was slow to identify the telltale signs of the crisis, identifying the first flare-up. then when he did react, he overreact with policies that they say stretched the resources of the federal reserve. now the big concern is will he time the fed's exit strategy properly. will he withdraw money from the economy on the right timing. l.a., you first. your reaction. >> well, that's half right. it is true that the chairman didn't recognize the signs of -- whether it was the housing bubble or the financial meltdown. i personally can't criticize him for that, because i was in the same position as he did, and i didn't see that coming. in terms of how he's reacted, i think it's absolutely wrong to say that he overreacted.

he reacted appropriately, aggressively as was necessary. now, whether it's overstretched the limits here, you know, i think that he certainly went to the edge with his use of the fed powers, but i think stayed within it. in terms of whether or not -- >> susie: the exit strategy. >> -- whether he can make exit at the appropriate time, i think that's true, but i think it's the wrong question. everybody's focused on exit. as we look back on this situation two years from now, the question we'll really be asking, not whether the fed exited at the appropriate time, but perhaps why the fed wasn't more stim lative today in going forward. >> susie: david, what do you think? >> i think the key decision to bernanke looking ahead to his second term is this exit policy.

once again, in in terms of his study of the great depression, the fed did very little as the economy slid into the great depression, and then the fed tightened too soon in 1937 with an exit policy, and that lengthened the great depression. thank goodness bernanke has been a student of this. i think his big decision will be this exit policy. i think he will handle it well, because he's moved his policy to a highly accommodative state. he's ready to unwind it a little bit. he's talked a little bit already about unwinding his purchases of treasury securities pretty much on schedule, by october. he had earlier said september. and maybe that will be the first step. i do not see a rate hike until we move into next year, not until we see the unemployment rate stabilize or start to come down. >> susie: let me move into another direction here. with this renomination from president obama, do you think that this gives ben bernanke new clout that he may be able to win

more regulatory powers for the federal reserve as this -- as congress considers regulatory reform? larry, what do you think? >> well, i think that will be challenging. it's challenging for the treasury and also for the fed. there's a lot of hostility in congress. a lot of reluctance to give the fed new powers. and very frankly, congress just didn't have seem to understand the situation very well, because the treasury's proposal in fact doesn't give the fed vast regulatory powers since it's already the supervisor of almost all systemically important financial institutions. >> susie: real quickly, we just have a few seconds left, david. i want to ask you about larry summers. the rumor mill was that he was very interested in being the fed chairman. what happens to him? does he stay as the chief economic advisor to president obama or does he move on? >> i think he will stay as the head of the national economic council. the right-hand man for the

president in terms of economic policy. i think he might at one point have wanted that fed chairman's job, but i think bernanke did a good enough job in handling the credit crisis and championship to deserve to be -- and -- deserved to be nominated. >> susie: we'll leave it there. thank you so much for coming on the program. >> susie: my guests tonight, laurence meyer, former fed governor, and now vice chairman, macroeconomic advisers and david jones, c.e.o. of d.m.j. advisors. >> paul: on wall street, news of the fed chairman's reappointment combined with positive economic data to send stocks sharply higher at the open, the dow jumping 110 points and the nasdaq rising 21 points in the first hour of trading. a profit taking pullback was cushioned by reports of rising home prices and stronger than expected august consumer sentiment. more on those reports in a moment. so by noon the dow was still up

80 points and nasdaq up 15. the market faded slowly through the afternoon but still ended with modest gains. >> susie: news of ben bernanke's reappointment could not drown out the other big announcement from washington: deficits are rising. the white house budget office now projects $9-trillion in red

ink over the next decade: two trillion more than expected just four months ago. and as darren gersh reports, the nation has to pay interest on all that added debt. >> reporter: basically the federal government finances its spending on everything from agriculture to nasa with something very much like a short-term adjustable rate mortgage. when interest rates are low, as they are now, that's good news says budget analyst stan collender. >> we got lucky this year is what it comes down to. the government did the equivalent of winning the lottery it got lower interest rates, but we can't count on that every year. >> reporter: today's figures from the congressional budget office show just what happens as interest rates return to more normal levels. interest on the national debt over the next ten years is expected to more than triple rising from $177 billion in 2009 to more than $700 billion in 2019. add up all the interest payments over the next ten years and you get $4.75 trillion.

but that's not the whole story. that just looks at current policies. if, as seems likely, congress extends key tax cuts, interest costs will go up another $566 billion for a total of $5.3 trillion. and budget reform advocates like maya macguineas say the ever- rising deficit projections will get a close look by the nation's creditors. >> you can't borrow this much money without at some point your creditors saying, this looks a little risky to me. i am going to charge you a bit more of a premium and when that happens, when the interest costs go up, because interest rates go up, they start to squeeze out all the other parts of the budget. you then have to borrow more just to pay for your interest and that's how you get stuck really in a vicious debt cycle. >> reporter: although low now, interest costs are projected to be one of the fastest growing parts of the federal budget. >> it is also the most uncontrollable. that is, you can cut social security, if you want to and have the political will, but you can't cut interest on the national debt. the money has already been

borrowed. >> reporter: think of debt service as a leading indicator. as the cost of borrowing rises, economic and political pain follow. darren gersh, "nightly business report", washington. >> paul: there are fresh signs of a rebound in the housing market. the standard and poor's case shiller home price index rose 1% from may to june. it's second-straight month to month increase. but those numbers are still down 15% on a year over year basis. the federal housing finance agency also released data today supporting a recovery. its index shows prices on homes with mortgages guaranteed by fannie mae and freddie mac rose one half a percentage point from may to june. both groups say price gains are being driven by first-time buyers and bargain hunters snapping up foreclosures. >> susie: as paul mentioned, a new report from the conference board today shows that consumers looking ahead six months are much more confident about their own financial fortunes. that should be good news for retailers, because people concerned about their finances

tend not spend. scott gurvey explains. >> reporter: when the economy hit the skids the retail sector fell off a cliff from which it has yet to recover. people without a job or afraid of losing one just don't spend. marie driscoll of standard and poor's says retailers have scrambled to adjust. >> in the last year we've watched retailers slow down their store expansion, reduce their inventory investment, skew their merchandise assortment. while they still have higher priced items available for their shoppers, they've skewed their assortment to lower price points. >> reporter: wall street anticipating lower earnings for some and actual losses for others, punished the sector's stocks. but kimberly greenberger of citi notes a recent modest recovery in share prices matching more encouraging news about the economy. >> we do think there has been a fundamental change in the way consumers spend their money. however, we went through a very

severe shock period really, october, november, december of last year where we had probably overcorrected to the downside relative to what we consider to be a new normal of spending. >> reporter: but just what will that new normal of spending be? today's confidence numbers indicate it will be above current levels. but below its former peak. >> we don't really anticipate that they'll go back to spending levels that we saw in two thousand and seven because so much of that was driven by available credit, very easy credit terms, people taking equity of the value of their real estate. it was a lot of aspirational living, living beyond one's means. >> reporter: that new normal should mean good news for the big box stores where value is the proposition. but the experts say it also will be good for specialty retailers that can really differentiate their line. >> the retailers who we think are going to win will be those retailers that are wowing the customer. putting fashion in their stores that is really covetable, must have fashion that consumers just

can't resist. so that longer term is what we think is the winning strategy. >> reporter: greenberger says most american women already have a full closet of clothes and that they need to be inspired before parting with their money. scott gurvey, "nightly business report", new york. >> paul: now, let's take a look at some stocks in the news tonight.

>> paul: joining us for more on the markets and the upward trend in oil prices, craig callahan, founder and president of icon advisers and the icon funds. craig, welcome back to nbr. >> the markets welcomed today's bernanke bernank, but you say ps shouldn't matter to investors. what do you think? >> people focused on washington, worried about things, debates and uncertainty, and they're missing the stock market. in terms of the fed chairman, he

will inherited quite a crisis a year ago, and i thought he handled it very well. so i think th market likes stability and we're fine with this reappointment. >> paul: politics is fine with investing? >> yes. people are debating issues that might have consequences three, four years from now. the market doesn't look out that far. >> paul: six months or so. >> definitely. >> paul: what are you seeing in the markets right now? >> broad market's up 53% from its low in march. we think it's a sensible rally. a very typical economic recovery anticipation rally. >> paul: but overdone? >> no. when it started, we saw stocks as 45% below fair value. we still see them as 10% below fair value. we think this can continue. >> paul: other bullish factors? >> corporate bond yields are dropping. that's n talked about very much, but one of the best rallies in corporate bonds we'll ever see is underway now, very supportive for higher stock prices. >> paul: but won't interest rates be rising if this economy doesn't indeed recover? >> we don't fear that.

in terms of treasury yields, we can see them inching slightly higher, but no real pressure to skyrocket. and again, corporate bond yields coming down. it's a favorable situation. >> paul: what are red flags in your mind for this market? >> it would take some unpredictable shock-type event. of course those are possible, as we saw in 2008, but i think they're behind us. if things would stay normal, it's higher from here. >> paul: this is a true bull market in your estimation? >> yes, it has the classic traits. even the leadership, led by materials, industrials, consumer discretionary cyclicals. that's as it should be. >> paul: do you have a mark for the dow to reach in a certain period of time? >> based on value, we'd see the market at least 10% higher over the next year, but i think value can move even higher to make that target more loftier. >> paul: okay. oil prices at $75 a barrel today before pulling back a bit. do you see the runup continuing? >> well, short-term it's very

difficult to predict the randomness of the oil market, but over the long-term with an economic expansion it would be proper for moderately, not the spike a few years ago, but moderately higher over the next couple years. >> paul: in a capsule, what are you telling investors right now? >> you look back at the crash of 1987, and it took about two years to recover, two steps forward, one back, two forward, one back. it wasn't a fun rally, but did recover. we're in for the same now. >> paul: the bull still has life? >> we think it does. >> paul: greg, we've run out of time. thank you for sharing your views with us. >> thank you very much. >> paul: my guest craig cal callahan. >> paul: my guest craig callahan of icon advisers and the icon funds. >> susie: tomorrow, from oreos to ritz crackers to mac & cheese, street critique guest patrick o'hare tells us why he's hungry for shares of kraft foods. >> susie: toyota plans to cut its global production capacity by 10% or one million vehicles according to japanese newspaper "the nikkei." the world's biggest automaker wants to maximize operations at its under-used plants.

the decrease in production will come as early as this fiscal year. toyota also hopes to return to an operating profit in fiscal 2010. >> paul: you're soon going to pay more for a six-pack. anheuser-busch in-bev said today it plans to raise beer prices this fall. the company's main rival miller- coors is also hiking prices. neither firm would specify by how much. both beer giants have been able to boost profits recently by raising prices to offset weaker sales growth. some analysts think higher prices may prompt some beer consumers to cut back.

>> susie: here's a look at >> susie: tonight's commentator says when it comes to the web economy. "free" always costs something. she's barbara kahn. dean of the university of miami school of business administration. >> chris anderson, author of the new book "free: the future of a radical price", and others argue that in today's digital age, firms must learn how to be profitable while offering products and services for free. skype, facebook and many iphone applications are certainly examples of how consumers are demanding services for which they pay nothing, hence free. but classifying these models as free misses a critical point and understanding this will illuminate where the profit potential is.

our economic system is based on exchange theory, where there are buyers and sellers willing to make an exchange. anderson's notion of free suggests that only one party is putting something into the exchange and that's not a market. but a closer look at these digital examples reveals that they are not free, they just don't cost money... yet. consumers are putting something into the exchange, their time, loyalty, or trust. free television is not free; it costs your time and attention. that's valuable to advertisers. facebook users invest their network of friends, which ties them to a system and that is valuable. these so-called free services are proliferating. if consumers don't initially pay money for such services, they must put something valuable into the exchange if profits are to be realized. creative businesses will design freemium products and services that consumers pay for with non- monetary resources, resources that can ultimately be used to garner profits. bottom line: in business there

is no such thing as a free lunch; just sometimes it doesn't cost any money. i'm barbara kahn. >> susie: that's "nightly business report" for tuesday, august 25. i'm susie gharib goodnight everyone. and good night to you paul. >> paul: goodnight susie. i'm paul kangas wishing all of you the best of good buys. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org