- US sees deeper woes, global governments step up response
- The Age
- 24/10/2008 Make a Comment
- Contributed by: The Rooster ( 264 articles in 2008 )
US officials warned Thursday of a rise in unemployment stemming from the credit crisis while France announced plans for a sovereign wealth fund to protect key industries from turmoil as debate raged over the cause of the global maelstrom.
The White House braced the US public for a sharp rise in layoffs and unemployment stemming from the global economic crisis, amid fresh warnings of a painful and lasting recession.
Spokeswoman Dana Perino said former Federal Reserve chief Alan Greenspan was right to warn, in testimony to a US congressional panel, of what he called "a significant rise in layoffs and unemployment."
"I think that that is right. And I think that's what we have been saying, that we're in for a rocky road on the employment front," Perino told reporters.
In France, President Nicolas Sarkozy announced the creation of a 100-billion-euro (128-billion-dollar) sovereign wealth fund to protect strategic sectors of the economy from the global financial storm.
Declaring that the recent turmoil had killed off the "dictatorship of the market", Sarkozy vowed to lead Europe towards a model in which the state will take a more active role in industry and protect firms from foreign takeover.
"A better world will emerge from this crisis than the one we had before," he said, adding that the fund would "intervene massively" in order to protect any strategically important French firms.
"What oil producers do, what China does, what Russia does, there's no reason that France should not do."
Sarkozy's proposal however did not go down well in Berlin where the German government said any such measures must be compatible with European Union rules.
In other developments:
- Alan Greenspan, who ended his 18-year stint as chairman of the US Federal Reserve before a years-long housing bubble burst, warned that a "once-in-a-century credit tsunami" would pummel consumer spending and jobs.
- Japan's central bank said it had injected 600 billion yen (6.2 billion US dollars) into the short-term money market.
- The Canadian central bank forecast 0.4 percent decline in gross domestic product in the fourth quarter of 2008 and a virtually flat period of growth in the first quarter of 2009, putting the economy on the edge of recession. Canada's Finance Minister Jim Flaherty meanwhile said the government would guarantee interbank loans over the next six months.
Governments around the world have unveiled packages over the last month totaling more than three trillion US dollars, including loan guarantees and cash injections, to restore confidence to banks and reverse a drop in lending.
The scale of the decline was illustrated by figures from the Bank for International Settlements, the world's biggest central banking body, which showed cross-border lending by banks fell 1.1 trillion US dollars in the second quarter of 2008 -- even before the worst of the latest crisis.
Sarkozy said the events of recent weeks had discredited free-market ideology and showed economies needed strong state intervention to succeed.
"The ideology of the dictatorship of the market ... is dead," he said.
In Britain, ministers promised to help iron out the problems facing small firms in securing loans after they met bosses of leading banks which benefited from a recent 37-billion-pound (47-million-euro, 60-million-dollar) bailout.
"The banks don't want to pull the plug unnecessarily on small businesses. They want to help where they can but the banks at the same time are facing difficult conditions of their own," said Business Secretary Peter Mandelson.
Sweden's central bank meanwhile tried to encourage consumer confidence by slashing its key interest rate by half a percentage point to 3.75 percent and said it planned to make further cuts within six months.
The ongoing financial crisis began with the emergence of problems on the US housing loan market last year. Defaults on so-called subprime mortgage loans set off a chain reaction of problems for banks and other institutions across the globe at a time when the global economy was already slowing.
Sarkozy said the US government's decision not to save Wall Street investment giant Lehman Brothers was an "irresponsible policy" and praised his government for intervening to prop up troubled French banks.
Asked about Sarkozy's comments, and whether US President George W. Bush had any second thoughts about Lehman, White House spokeswoman Dana Perino replied: "I'm not going to second-guess it, because it is what it is."
Governments in Latin America stepped forward to calm markets left despondent by fears of a global recession and Argentina's decision to nationalize pension funds.
Brazil and Mexico took measures to try to stop the long slide of their currencies against the dollar, while an Argentine official promised the pensions grab would not mean state intervention in banks and companies managing the funds.
The White House braced the US public for a sharp rise in layoffs and unemployment stemming from the global economic crisis, amid fresh warnings of a painful and lasting recession.
Spokeswoman Dana Perino said former Federal Reserve chief Alan Greenspan was right to warn, in testimony to a US congressional panel, of what he called "a significant rise in layoffs and unemployment."
"I think that that is right. And I think that's what we have been saying, that we're in for a rocky road on the employment front," Perino told reporters.
In France, President Nicolas Sarkozy announced the creation of a 100-billion-euro (128-billion-dollar) sovereign wealth fund to protect strategic sectors of the economy from the global financial storm.
Declaring that the recent turmoil had killed off the "dictatorship of the market", Sarkozy vowed to lead Europe towards a model in which the state will take a more active role in industry and protect firms from foreign takeover.
"A better world will emerge from this crisis than the one we had before," he said, adding that the fund would "intervene massively" in order to protect any strategically important French firms.
"What oil producers do, what China does, what Russia does, there's no reason that France should not do."
Sarkozy's proposal however did not go down well in Berlin where the German government said any such measures must be compatible with European Union rules.
In other developments:
- Alan Greenspan, who ended his 18-year stint as chairman of the US Federal Reserve before a years-long housing bubble burst, warned that a "once-in-a-century credit tsunami" would pummel consumer spending and jobs.
- Japan's central bank said it had injected 600 billion yen (6.2 billion US dollars) into the short-term money market.
- The Canadian central bank forecast 0.4 percent decline in gross domestic product in the fourth quarter of 2008 and a virtually flat period of growth in the first quarter of 2009, putting the economy on the edge of recession. Canada's Finance Minister Jim Flaherty meanwhile said the government would guarantee interbank loans over the next six months.
Governments around the world have unveiled packages over the last month totaling more than three trillion US dollars, including loan guarantees and cash injections, to restore confidence to banks and reverse a drop in lending.
The scale of the decline was illustrated by figures from the Bank for International Settlements, the world's biggest central banking body, which showed cross-border lending by banks fell 1.1 trillion US dollars in the second quarter of 2008 -- even before the worst of the latest crisis.
Sarkozy said the events of recent weeks had discredited free-market ideology and showed economies needed strong state intervention to succeed.
"The ideology of the dictatorship of the market ... is dead," he said.
In Britain, ministers promised to help iron out the problems facing small firms in securing loans after they met bosses of leading banks which benefited from a recent 37-billion-pound (47-million-euro, 60-million-dollar) bailout.
"The banks don't want to pull the plug unnecessarily on small businesses. They want to help where they can but the banks at the same time are facing difficult conditions of their own," said Business Secretary Peter Mandelson.
Sweden's central bank meanwhile tried to encourage consumer confidence by slashing its key interest rate by half a percentage point to 3.75 percent and said it planned to make further cuts within six months.
The ongoing financial crisis began with the emergence of problems on the US housing loan market last year. Defaults on so-called subprime mortgage loans set off a chain reaction of problems for banks and other institutions across the globe at a time when the global economy was already slowing.
Sarkozy said the US government's decision not to save Wall Street investment giant Lehman Brothers was an "irresponsible policy" and praised his government for intervening to prop up troubled French banks.
Asked about Sarkozy's comments, and whether US President George W. Bush had any second thoughts about Lehman, White House spokeswoman Dana Perino replied: "I'm not going to second-guess it, because it is what it is."
Governments in Latin America stepped forward to calm markets left despondent by fears of a global recession and Argentina's decision to nationalize pension funds.
Brazil and Mexico took measures to try to stop the long slide of their currencies against the dollar, while an Argentine official promised the pensions grab would not mean state intervention in banks and companies managing the funds.
Source: https://news.theage.com.au/world/us-sees-deeper-woes-global-governments-step-up-response-20081024-57jv.html
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