The US Federal Reserve and Treasury
Department on Tuesday announced two new programmes that will pump an additional
800 billion dollars into the struggling economy and unfreeze credit for
consumers and small businesses, dpa reported.
This second stimulus follows the 700-billion-dollar rescue package
already approved by Congress. Under one of the two new programmes, the Fed will
use 600 billion dollars to buy mortgage-backed securities to reduce the cost of
home mortgages.
The other programme, the Term Asset-Backed Securities Loan Facility (TALF), by
the Federal Reserve Bank of New York, will create a lending facility worth 200
billion dollars to holders of securities backed by consumer debt - credit card,
student and auto loans. This will essentially make it easier for consumers to
borrow money.
The New York Fed is headed by Timothy Geithner, named Monday by president-elect
Barack Obama as his Treasury secretary. Geithner will be tasked with rescuing
the financial industry from its worst crisis since the Great Depression when
the new administration takes over on January 20.
The Treasury Department said it would provide 20 billion dollars of credit
protection to the New York Fed for TALF, Treasury Secretary Henry Paulson told
a news conference Tuesday.
Consumer asset-backed securities (ABS) worth 240 billion dollars were issued in
2007. But the widening financial crisis this year ensured that banks and
financial institutions have been reluctant to lend, with credit markets
essentially coming to a halt in October.
"As a result, millions of Americans cannot find affordable financing for
their basic credit needs. And credit card rates are climbing, making it more
expensive for families to finance everyday purchases," Paulson said.
The lack of affordable consumer credit undermines spending and weakens the
economy, he said.
Paulson's announcement came as the Commerce Department presented more bad
economic news. The Gross Domestic Product for the US in the third quarter
shrunk at an annualized rate of 0.5 per cent - the worst in seven years.
"Today's GDP report reaffirms the serious challenges in our economy,"
Commerce Secretary Carlos M Gutierrez said. White House spokeswoman Dana Perino
said the third quarter figures show the need for swift government steps to
prevent further damage.
"The numbers are what they are, which is they're troubling, and this is
why we are having to act and take such bold actions that we are taking,"
she said.
Other economic news on Tuesday showed consumer confidence rose slightly in
November from an all-time low a month earlier. The independent Conference
Board's index rose to 44.9 up from 38.8 in October.
In the newly-outlined programme for the ailing housing market, the nation's
central bank will buy up to 500 billion dollars in mortgage- backed securities,
which have been backed by government-sponsored mortgage finance firms Fannie
Mae, Freddie Mac and Ginnie Mae. The Fed will buy an additional 100 billion
dollars of direct debt obligations of these firms.
"This action is being taken to reduce the cost and increase the
availability of credit for the purchase of houses, which in turn should support
housing markets and foster improved conditions in financial markets more
generally," the Fed said in a statement.
"Nothing is more important to getting through this housing correction than
the availability of affordable mortgage finance," Paulson said.
"It will take time to work through the difficulties in our market and our
economy, and new challenges will continue to arise," Paulson said, adding
that the government was committed to stabilizing the financial markets and
minimizing the spillover to the rest of the economy.