Wall Street moved higher during early morning trades
while Ben Bernanke urged congress to consider a new plan and the
White House said that President Bush was "open" to the idea.
"We are in a serious slowdown for the economy, whether
it is called a recession or not is of no consequence," Bernanke
said.
Bernanke's speech before House Budget Committee lifted
markets as investors liked what he had to say. Lending rates
showed signed of easing credit but Bernanke still warned that
economy will be weak for several quarters.
According to Bernanke the new package should be a
significant as housing, credit and financial crises has brought U.S
to its knees. This also leaves door for more rates cuts and with
markets taking slow recovery, investors know it will take time until
we see a major change.
The three-month Treasury bill Monday yielded 0.91
percent, up from 0.82 percent late Friday. Investors were also
optimistic about LIBOR as The London interbank offered rate, for
three-month dollar loans fell 0.36 percent to 4.06 percent.
Many analysts still predict that market will shrink
later this year and early next year as we are still in
slowdown. The nation's unemployment rate-now at 6.1
percent-could hit 7.5 percent or higher by next year.
The credit markets will slowly respond to bailout
packages and bring confidence in trading, including U.S and European
plan to buy stakes in banks. Even though government is spending
billions to buy stocks in banks, this should not hit taxpayer's bill
at all. Treasury Secretary Henry Paulson said the government will
own shares in the banks that should be paid back with a reasonable
return. "This is an investment, not expenditure, and there is no
reason to expect this program will cost taxpayers anything," Paulson
said.
The application process consists of two forms which
banks need to fill out and return to their primary regulator who
will review it and sends it to Treasury Department. Paulson wanted
the larges banks currently participating in the package to receive
$125 billion bailout first to remove any negative credit clog.
The new package according to Bernanke should include
provisions that would help break through the stubborn credit clog.
"If the Congress proceeds with a fiscal package, it should consider
including measures to help improve access to credit by consumers,
home buyers, businesses and other borrowers," Bernanke said. "Such
actions might be particularly effective at promoting economic growth
and job creation," he added.
Consumers, on the other hand, cut spending as rising
unemployment, shrinking paychecks and hard to qualify for a credit
added to cut backs. Retailers are expected to report declines for
next quarter.
"The time needed for economic recovery, however, will
depend greatly on the pace at which financial and credit markets
return to more-normal functioning," Bernanke said.
"Because the time that will be needed for financial
normalization and the effects of ongoing credit problems on the
broader economy are difficult to judge, the uncertainty currently
surrounding the economic outlook is unusually
large."
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