11-25-2008, 05:22 AM
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#2
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Senior Member
Join Date: Aug 2007
Location: Okolona, Ky.
Posts: 6,142
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Have we become numb to it?...
Mounting U.S. financial rescue cost not a worry now
Mon Nov 24, 2008 WASHINGTON - The trillions of dollars in public funds U.S. officials are putting on the line to stabilize financial markets and protect the economy from a deep recession would, in normal times, inspire fear of soaring inflation and a tumbling dollar. But these are not normal times.
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"The patient's on the floor right now. You want to get him up off the floor; then you worry about diet and exercise," said James Horney of the Center on Budget and Policy Priorities. With Sunday's late-night announcement of a $306 billion government backstop for ailing bank Citigroup Inc, the potential bill for the U.S. financial cleanup has topped an eye-popping $5.7 trillion, although far less has been committed and money extended might not be lost.
The Treasury Department had already secured a $700 billion fund to aid banks and vowed to provide up to $200 billion to prop up mortgage finance companies Fannie Mae and Freddie Mac, while the Federal Reserve had expanded its balance sheet to $2.1 trillion as it pumped funds into frozen credit markets. More federal largesse in the form of a government spending plan to spur the economy appears on the way.
"We are going to do what what's required to jolt this economy back into shape," President-elect Barack Obama said at a news conference on Monday. In addition, the Fed has cut interest rates to a low 1 percent and some see the U.S. central bank bringing borrowing costs even lower, perhaps all the way to zero, as attention shifts to the possibility, if remote, that the stumbling economy could be headed for a bout of debilitating deflation.
These actions could be recipes for higher interest rates, inflation and a weaker dollar. But analysts say there is reason to believe the government can remove emergency life-support measures before nasty side-effects are seen. "The market is so afraid of a deflation, Japanese-type story that the budget deficit becomes irrelevant, at least in the here and now," said Joseph LaVorgna, chief U.S. economist for Deutsche Bank Securities.
More Mounting U.S. financial rescue cost not a worry now | Special Coverage | Reuters
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Obama urges Congress to pass costly stimulus bill; stocks surge
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