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'Only govt can jolt US out of recession'
(China Daily)
Updated: 2009-02-11 08:05


US President Barack Obama speaks during his first news conference as president in the East Room of the White House, in Washington, DC. Bloomberg News

President Barack Obama said only the government could rescue the world's biggest economy from a "negative spiral", as investors around the globe looked to the United States to lead the way out of the global financial crisis.

Fearing deepening banking problems from the crisis, currency markets wobbled on a report in Japan's Nikkei business daily that Russia will request negotiations with European and other foreign banks to postpone repayment on up to $400 billion of its private sector debt.

The euro fell more than 1 percent against the dollar and the yen on the report. The dollar had slipped on Monday amid concerns about whether US government rescue plans would work.

Obama took his case for an $800 billion-plus stimulus package directly to the recession-weary American public on Monday as he urged Congress to approve a final bill before the recession worsened.

"With the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life," Obama said during a televised prime-time news conference.

"This is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression."

Treasury Secretary Timothy Geithner was due to unveil a plan to rescue stricken financial institutions on Tuesday.

Three sources briefed on the plan told Reuters it included a public-private partnership that can buy up to $500 billion of distressed assets, but not a standalone government "bad bank". Dallas Federal Reserve Bank President Richard Fisher said on Monday he does not expect the US economy to grow in 2009, and that "a lot hangs" on the impact of the stimulus package.

Asian share indexes pared gains and US stock futures fell due to uncertainty about details of the plan.

The global downturn began with a US housing market slump that triggered a crisis in debt-derivatives markets and wiped out nearly $14 trillion in global stock market value last year as banks ran into trouble, requiring government bailouts.

The financial crisis has in turn triggered recessions in all of the big industrialised economies, sharp slowdowns elsewhere and put millions of jobs on the line.

The US stimulus bill - a mix of tax cuts and public spending measures - passed a key procedural hurdle in the US Senate on Monday, paving the way for the chamber to pass the bill on Tuesday.

The Senate version must be reconciled with one the House of Representatives has passed, which may require several days of negotiations. Obama wants a final version by this weekend.

CNBC initially reported on its website the "bad bank" aspect of the scheme was being dropped, but later updated its report to say a new form of the plan would essentially combine public and private resources to take bad assets off banks' books.

The Nikkei said a proposal for postponing private sector debts had been submitted to the Russian government and some foreign banks had already agreed to negotiations.

The report, which has not been independently confirmed, follows a cut in Russia's sovereign debt rating last week, which underscored worries a sharp downturn in Eastern Europe could add another drag on the euro zone and send the currency sliding.

Western European banks lent heavily to Russia and other Eastern European countries and Russia was a big buyer of euro zone exports when oil prices were high.

"As was the case last week when Fitch downgraded Russia, bad news about Russia basically becomes a factor for the euro to fall," said Takahide Nagasaki, chief foreign exchange strategist for Daiwa Securities SMBC.

In Australia, one of the few developed economies not already in recession, business confidence sank back to record lows in January as a swathe of industries reported falling demand at home and the global downturn hammered exports.

"Even on last month's reading, confidence was already at levels at or below the bottom of the early 1990s recession," said Alan Oster, group chief economist at National Australia Bank, which compiles the monthly survey.

In Britain, which the IMF expects to be the worst-hit of the big developed economies by the recession, retail sales rose in January for the first time since last May, but the increase was driven by food sales and heavy price cutting. In the gloomiest prediction yet by a senior minister, Schools Secretary Ed Ball, a close ally of Prime Minister Gordon Brown, said the country faced the worst recession in more than 100 years.

"This is a financial crisis more extreme and more serious than that of the 1930s," he said. "The economy is going to define our politics ... in Britain in the next five years, the next 10 years and even the next 15 years."


(China Daily 02/11/2009 page16)