Bush Urges Wall Street, Main Street to Remember Rescue Package Coming
Economy, Economy-US, Mortgage & Credit Crisis
The United States is gripped by a massive financial crisis that has frozen credit markets, killed major banks, and pushed millions of families toward the dark day of home foreclosure. The stock market is suffering unbelievable declines, and people are asking, why don’t they stop selling? Can’t there be a concerted effort to restore confidence? One major part of the problem is employment and the middle class: the average household has actually seen their income decline by $2,000 since 2001.
If the consumer doesn’t have money to cover the rising cost of living, if energy, food, transport and healthcare are becoming prohibitively expensive —when taken together— for those who have seen their incomes decline, there will not be and cannot be an easy way out for the average American consumer. And as consumer spending makes up 70% of US GDP, the overall economic outlook must be bleak, if there is no way for consumers to keep pace with their habits.
Pres. Bush is famously aware of this, as he urged Americans to “go shopping” in the wake of the terrorist attacks of September 2001, painting the buying of consumer goods and services, the spending of tourism dollars, as a contribution to the national wellbeing. Now, with that heavy weight of consumer spending hanging over him, and steep declines threatening to undermine this most vital part of the nation’s economic activity, he sought this morning to tell the nation: the government is using the levers of economic leadership to steer the nation through this perfect economic storm.
Bush noted that, as home loans have failed, banks holding large amounts of mortgage-based assets have lost large sums of money, making them insolvent and reducing their confidence in each other. The government is acting to lessen the crisis and increase liquidity (”the grease necessary to keep the gears of our financial system turning”). Bush also announced that the Fed has injected hundreds of billions of dollars into the banking sector, in order to increase liquidity, hoping to spur a return to more regular lending practices, without which, businesses small and large will struggle to continue functioning normally.
The Federal Deposit Insurance Corporation has significantly increased insurance covering deposits, up to $250,000. Bush did not announce, as some have speculated, a 100% FDIC deposit insurance level, but the 150% increase over the old FDIC insurance level should go some way toward shoring up the banking sector against the threat of a catastrophic run on deposit accounts.
Bush also reminded the public of the $700 billion financial rescue package. The truth is, that legislation is one of the most sweeping and costly efforts in US history to inject new money into the financial markets in order to preserve their long-term stability. The money may not be flowing freely at the moment, and some of it depends on reforms in the regulatory system, but the machine of government is now moving to insure against more major bank failures and spur financial institutions to lend reliably to one another again.
The stock market’s volatility today and throughout the week, which ended as its worst week on record, leaves many wondering if the metaphorical “bottom” of the decline in stock values is near, or whether there’s still much more room for contraction and correction. The safe money considers that moment, the real bottoming out of stock values, to be a moment when we can see clearly that the markets have “corrected” and that the value lost can be treated as having been inflated value, not real economic value.