The financial bailout is just a first step for the economy
Economy needs more than the $700 billion “rescue package”
By Tom Stundza -- Purchasing, 9/26/2008 2:16:00 PM
Even if the $700 billion financial rescue package finally passes Congress during this weekend or next week, it will only be the first step to salvage the economy, says Eugenio J. Alemán, senior economist at Wells Fargo Economics in Minneapolis. “This package doesn’t include the recapitalization of banks, something that will take some time and without which economic growth will remain impaired,” he tells clients. “Very few financial institutions are lending today and the reason is that losses have left them in a very delicate capital position.”
Along the same lines, the latest government report on new orders for durable goods came in below expectations and the declines were broad based across most sectors--“reflecting weakening demand at home and abroad in addition to the tightening of credit standards for commercial and industrial loans,” says Kevin Swift, chief economist for the American Chemistry Council in Arlington, Va.
Swift says that housing inventories must be worked off before a recovery in residential construction sector (and subsequent commercial construction) can materialize. “Of course, recent turmoil in credit markets will make it even more difficult to obtain the mortgages required to finance such real estate transactions,” he says. “This suggests the housing market may weaken further in the short term.”
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