US stocks rebound as leaders scramble to save $700 bn bailout

September 30th, 2008 - 9:24 pm ICT by IANS  

Washington, Sep 30 (IANS) US stock futures rebounded as President George W. Bush Tuesday assured the nation, amid growing signs of a sliding economy, that rejection of a $700 billion financial rescue plan was “not the end” and a new bill was on the anvil.The economy was depending on decisive action from the government on a financial bailout plan or the economic damage could be “painful and lasting”, said Bush a day after the House of Representatives rejected the bailout plan.

“I assure our citizens and citizens around the world that this is not the end of the legislative process,” he said. “We’re at a critical moment for our economy and we need legislation that addresses the troubled assets… allows the American economy to get moving again.

“If our nation continues on this course the economic damage will be painful and lasting,” he told reporters at the White House.

He said his advisers will be talking to congressional leaders Tuesday with a view to starting new legislation moving Wednesday.

Administration officials are exploring several options for new approaches, but it appears likely that the new legislation will retain the major features of the bill rejected by the House in a 228-205 vote Monday. Two-thirds of Republicans and about one-third of Democrats voted against the bill.

The setback to the bailout package hammered out by Treasury Secretary Henry Paulson and Congressional leaders from both parties came amid what analysts said were growing signs that the US economy is in a steep slide.

As the Washington Post put it: “Unemployment is at levels not seen in five years. Consumer spending is flat. Many of the sectors that have been fuelling the tepid economic growth of the past year are beginning to flag. Exports are softening. Agricultural and other commodity prices are slipping.”

Lawmakers “now need to get moving or you really will have a serious drop in national income”, it quoted Thomas Ferguson, a professor at the University of Massachusetts at Boston, as saying.

“We don’t have to rescue Wall Street, but we do have to get credit markets open. You can’t run private enterprise economies without credit. Nothing will work without that.”

Some economists, the Post said, worry that the US is in danger of slipping into a self-perpetuating cycle of tight credit, diminished confidence, reduced spending and growing unemployment that will result in a prolonged period of economic stagnation.

Even relative optimists say the nation is in for nearly another year of sluggish economic activity, before the housing market hits bottom and things pick up again, it said.

The government released more bad economic news Monday: Consumer spending was up less than 0.1 percent in August, the worst performance since February. That came on top of data last week showing that orders of durable goods are down and sales of new homes are plummeting.

Meanwhile, tightening credit has made it harder and more expensive for many small businesses to borrow money, a process that many analysts say could accelerate with the turmoil on Wall Street.

Although some corporations are sitting on large sums of cash - and those with top bond ratings are enjoying favourable access to credit markets - others are paying much more for short-term loans, if they can get them at all.

The Post cited many analysts as saying that the bailout that failed Monday would slow -not reverse - the deterioration in the economy. Things will not correct themselves until the housing market rebounds, they say.

“The economy is in bad shape, but it is not because of the problems in the banking system, it is because of the housing crash,” said Dean Baker, co-director of the Centre for Economic and Policy Research, who thinks housing prices will fall well into 2009.

“The bailout would have freed up some money. But I never saw a sea change even if it passed. It wasn’t like suddenly we’d be flush with credit.”

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