WASHINGTON, Feb 4 – The United States extended emergency programs to channel billions of dollars onto world markets, trying to keep cash and credit flowing during the worst financial crisis in decades.
The move came with world governments trying a variety of measures, from interest-rate cuts to spending programs, to revive economies fighting a global downturn that has been deepened by a shortage of available credit.
The Federal Reserve said so-called currency swap lines with central banks around the world had been extended six months to October 30, as it tries to ease the pressure on a financial system in turmoil from the current crisis.
Swap lines with 13 central banks and other emergency liquidity programs started over the past year would be prolonged "in light of continuing substantial strains in financial markets," the Fed said Tuesday.
The programs have been seen as helpful in restoring stability through some of the worst upheavals of the crisis, which saw major banks collapse as losses from bad mortgage-related assets piled up.
The swap lines allow central banks to borrow from each other short-term, making cash available at a time when many financial institutions either did not have money to lend, because of the losses, or were wary of doing so.
The Fed extension "should contribute to improving the foreign currency funding conditions of banks and restoring stability to the financial market in Korea," said the Bank of Korea.
Swap lines extended were with the central banks of Australia, Brazil, Canada, Denmark, Britain, South Korea, Mexico, New Zealand, Norway, Singapore, Sweden, Switzerland and the European Central Bank.
Lawmakers in the US Senate meanwhile spent another day mulling President Barack Obama\’s massive stimulus package, with the new US leader insisting there is no time to waste for drastic action to kick-start the fumbling economy.
But a "Buy American" provision added in the Senate version of the 900 billion dollar bill, which would bar using the money to buy foreign steel and other products for infrastructure projects, has whipped up controversy.
America\’s trading partners have reacted with fury to the clause, warning it could start a global round of tit-for-tat trade reprisals akin to the tariff wars of the last financial crisis this vast, during the Great Depression.
"That is a potential source of trade wars that we can\’t afford at a time when trade is sinking all across the globe," Obama said.
Meanwhile his administration, which was quickly embroiled in a war of words with China over allegations that Beijing has been manipulating its currency to benefit Chinese exports, said there was a need for high-level talks.
US Treasury Secretary Tim Geithner spoke with Vice Premier Wang Qishan by phone late Monday and "agreed on the need for a continued high-level dialogue on bilateral economic issues," a statement from his office said.
They also emphasized the need for close consultations "during this difficult period for the global economy."
China said this week that around 20 million migrant workers were left unemployed by the current crisis, which has seen countless factories closed across the world\’s third-largest economy.
Premier Wen Jiabao said this week that China would consider "extraordinary measures" to boost its economy beyond a 580 billion dollar economic stimulus plan announced last year.
Governments have struggled to find effective measures to fight the crisis, which began with losses in so-called subprime loans in the United States but quickly spread throughout the global financial system.
The chief executive of BHP Billiton, the world\’s biggest mining group, which on Wednesday announced a 56.5 percent drop in first-half profit, said the speed of the downturn had taken many companies by surprise.
"It\’s fair to say that we, like all or most other people, did not see the speed or the dramatic nature of the downturn that has occurred, which is simply unlike anything certainly I have seen before," CEO Marius Kloppers said.
Firms around the world have seen their bottom lines take a beating in the wake of the slowdown, and Japan\’s fourth-largest automaker Mitsubishi became the latest victim Wednesday, saying it now expected to post a loss this year.
British oil giant BP reported a 24 percent drop in fourth-quarter net profit on Tuesday while Swedish truckmaker Scania said its profits in the last three months of 2008 had fallen by 44 percent.