Will the Rescue Plan Help the U.S. Economy?

On Wednesday night, the U.S. Senate passed a $700 billion financial-market rescue package. The bill still needs to be accepted by the House of Representatives, but even if it gets approved, will it bring any relief to the U.S. economy?

So far, the U.S. economy has largely been able to go through the financial crisis growing by 2.8 percent last quarter and without that much damage. However, the only reason why GDP growth has been so positive is the recent surge in exports which was caused by a substantial depreciation of the dollar and the tax rebate program implemented at the beginning of the year. In fact, although the U.S. economy is still not in a technical recession, the signs of slowdown of the biggest economy in the world are multiplying.  For instance, house prices are still declining and retail sales and industrial production are already negative on an annualized basis.  Moreover, manufacturing contracted in September at the fastest pace since 2001 and factory orders slumped more than economists forecast. In addition, the unemployment rate is rising faster than at any time since the early 1980. Indeed, jobless claims climbed to a seven-year high and it are predicted that non farm payrolls declined another 105,000 in September.

So, what the $700 billion financial-market rescue package approval will change? Some may think it can only bring high indebtedness of U.S. government and the lost of taxpayers money. Indeed, with the United States already running budget deficits, bailout costs could push the fiscal deficit next year to $1 trillion or 7 percent of GDP. However, we can't forget that behind all these troubled assets is also banks ability to lend money to the average citizen.

There is no doubt that the plan passage will make credit again available, restore the confidence in the U.S. market and all over the world and prevent job loses.

Will the Rescue Plan Help the U.S. Economy?

Anna Fedec, contact@tradingeconomics.com
10/2/2008 12:44:58 PM