Fed chief backs US spending plan

October 21, 2008
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, WASHINGTON, October 21 – The head of the Federal Reserve Ben Bernanke has given his backing for a stimulus plan for the flagging US economy as stock markets worldwide bounced back from recent lows.

Saying the US economy risked a "protracted slowdown," Bernanke said US lawmakers were right to consider a second stimulus plan this year as activity slows across the country.

His endorsement came Monday after a forecast that the financial crisis could push worldwide unemployment to a record high and as new bank rescue efforts were unveiled in France and Sweden.

"With the economy likely to be weak for several quarters and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," he told a House of Representatives budget committee.

He was asked to say if the US economy was in recession, but replied only that the there was a "very serious slowdown in the economy which has very serious consequences for the public."

The fallout for workers was made clear in the report by the International Labour Organisation (ILO) which warned of a 20-million rise in the number of unemployed worldwide by the end of 2009.

Estimates from the ILO indicate that the "number of unemployed could rise from 190 million in 2007 to 210 million in late 2009," said ILO head Juan Somavia in Geneva, marking the "first time in history that we pass 210 million.

News of the impact on global employment levels comes as the head of China\’s National Development and Reform Commission predicted the country will achieve nine percent economic growth in 2008, despite a slowdown during the first three quarters.

"Of course, due to the action of economic turbulence outside of China there is some slowdown in our growth rate," Zhang Ping, chairman of the influential economic body, said during a visit to Australia on Tuesday.

His comments came a day after Beijing revealed growth slowed to 9.9 percent in the first nine months, compared to 12.2 percent in the same period last year as the global credit crisis began taking its toll on China\’s booming economy.

While the financial crisis has failed to halt China\’s economic juggernaut, signs that it is not insulated from the global downturn came with the announcement that its growth had to 9.0 percent in the third quarter.

It was the first time since 2005 that quarterly growth slipped into single digits and the lowest figure since the second quarter of 2003.

"The growth rate of the world economy has slowed down noticeably. There are more uncertain and volatile factors in the international economic climate," said Li Xiaochao, spokesman of the National Bureau of Statistics.

Underlining the impact of the slowdown on jobs, the electrical appliance manufacturer Bailingda shut its factory in China\’s southern export hub of Shenzhen, leading to the loss of 1,500 jobs.

There was also more dire news in the banking industry.

Sweden became the latest government to shore up its financial sector, presenting a plan worth 1.5 trillion kronor (152.2 billion euros, 206.1 billion dollars).

The French government said it would inject 10.5 billion euros (14 billion dollars) into the country\’s six biggest banks to boost their capital following moves by fellow European countries.

Among the beneficiaries, the biggest bank Credit Agricole will get three billion euros, BNP Paribas will get 2.55 billion and Societe Generale 1.7 billion.

US Treasury Secretary Henry Paulson also gave more details of the US rescue plan, saying banks had until November 14 to apply for some of the 250 billion dollars set aside for capital injections by the government.

Paulson said "a broad group of banks of all sizes" had shown interest in a capital injection.

There was also more gloom in Britain, with the release of figures showing its public decifit worsened to 12.6 billion pounds (21.6 billion dollars, 16.2 billion euros) last month. The September figure compared with a deficit of 8.7 billion pounds 12 months earlier, said the Office for National Statistics.

Bernanke urged US lawmakers to weigh the impact of a stimulus package on the US budget deficit, which tripled in the 2007-2008 fiscal year ended September 30 to 455 billion dollars.

On stock markets, the Tokyo Stock Exchange\’s benchmark Nikkei index rose more than three percent in early trade on Tuesday, as investors welcomed the possibility of stepped-up government action to tackle the global finance crisis.

The leading Wall Street index, the Dow Jones Industrial Average, soared 4.65 percent to 9,263.68 just after the closing bell Monday.

The London FTSE 100 index of leading shares gained 5.41 percent, in Paris the CAC 40 jumped 3.56 percent, in Frankfurt the Dax added 1.12 percent, and in Brazil the Bovespa closed 8.36 percent higher.

Hong Kong surged 5.3 percent and Seoul gained 2.3 percent, a day after South Korea joined the list on Sunday of governments who have unveiled plans to safeguard its banks.

"There isn\’t much rhyme or reason for the upward bias, other than the hopeful sense that the market is near a bottom and that all of the government action will succeed in easing the stresses in the credit market," said Patrick O\’Hare, analyst at Briefing.com.

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