On Tuesday morning, Federal Reserve Chairman Ben Bernanke addressed the London School of Economics in London, offering thoughts on the Federal Reserve’s responses to the economic crisis and the stimulus package being developed by President-elect Barack Obama.

Bernanke began by highlighting the “extraordinary stress” the global financial system has been under for the last year and a half, saying that the “proximate cause” of the crisis was the turn of the housing cycle in the U.S., and the subsequent rise in subprime mortgage delinquencies.

He said that Obama’s substantial fiscal package could provide a “significant boost" to a damaged economy. However, he warned that fiscal actions such as these are unlikely to bring long term stabilization to the system.

"History demonstrates conclusively that a modern economy cannot grow if its financial system is not operating effectively,” Bernanke said.

This speech marked the first time Bernanke has addressed Obama’s $800 billion recovery plan. Obama, who will be inaugurated next week, hopes to boost government spending with the stimulus plan, and may include some tax cuts.

Although Bernanke did not comment on the details of Obama’s stimulus plan, he said that “more capital injections and guarantees may become necessary" to bring stability to the markets.

“I believe that the Fed still has powerful tools at its disposal to fight the financial crisis and the economic downturn,” Bernanke said. “Even though the overnight federal funds rate cannot be reduced meaningfully further.”

Bernanke said that even as the country recovers from the current financial crisis, it must also work toward preventing future ones.

"A clear lesson of the recent period is that the world is too interconnected for nations to go it alone in their economic, financial and regulatory policies," he said. "International cooperation is thus essential if we are to address the crisis successfully and provide the basis for a healthy, sustained recovery.

He also noted that companies considered "too big to fail" must be willing to submit to increased regulatory scrutiny, noting that one of the biggest problems of the financial crisis has been that those large institutions took such big risks.