Monday, Oct 20, 2008
A senior economic adviser says parts of the US economy are already in recession amid fears that major economies could face a severe downturn.
“We are seeing what anyone would characterize as a recession in some parts of the country,” Edward Lazear, chairman of the US president’s Council of Economic Advisors said.
He added that unemployment in some areas is running “much higher” than the 6.1percent national level.
Concerns are rife that the Emergency Economic Stabilization Act, passed by Congress on October 3, may not be enough to restore liquidity to financial markets or to avoid a sharp global economic downturn.
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Although it will take a few months for a significant impact from the Treasury’s $700 billion credit market rescue plan, the first signs of response are already apparent, Lazear said.
The rescue plan would allow financial institutions with ‘significant operations in the US’ to sell their bad debts to the Treasury fund, which plans to resell the debts after their value increases.
Lazear said the US budget deficit would grow because of the cost of the bailout plan, but declined to say how high.
Wall Street ended a volatile two-week run fairly stable on Friday, and there were indications that bank-to-bank lending rates eased and that some companies returned to the bond market to raise cash.
Although sliding retail sales figures have raised fears that a US recession could come on more quickly and strongly than even some gloomy predictions.
The warnings came after Ben Bernanke, chairman of the Federal Reserve, warned on Wednesday that credit market turmoil posed a “significant threat” to an already slowing American economy as new data deepened recession fears.
Bernake’s remark sent global markets sharply lower, with Tokyo shares tumbling 10 percent on Thursday.
On Monday, a respected British panel of experts also warned that the Britain’s economy is in recession and will shrink by one percent next year.
The Ernst & Young ITEM club, which uses the Treasury’s own model for its prediction, says the credit crunch will hit the UK “very hard”.
The gloomy forecast comes as official figures, out on Friday, are expected to show the first quarter of economic contraction since 1992 between June and September.
Stock markets across the globe have fallen sharply following the bankruptcy of big Wall Street firms, such as Lehman Brothers, Merrill Lynch and Washington Mutual, the latter marking the largest failure of a US banking giant.
This article was posted: Monday, October 20, 2008 at 12:01 pm