Bernanke eyes new stimulus package

Bernanke eyes new stimulus package

An easing of credit markets has increased confidence among investors in US stocks [AFP]
Ben Bernanke, the chairman of the US federal reserve, has suggested a second "stimulus package" could be used to stave off an economic slowdown.
"The stabilisation of the financial system, though an essential first step, will not quickly eliminate the challenges still faced by the broader economy," he told the US House of Representatives budget committee on Monday.
"... with some risk of a protracted slowdown, consideration of a fiscal package by the congress at this juncture seems appropriate," he said.
The central bank chairman's comments were his first official endorsement of a second package to follow about $100bn handed to taxpayers over the summer in a bid to boost the US economy through increased consumer spending.
Aljazeera's Cath Turner, reporting from Washington, said: "It's a significant shift in thinking by Bernanke - in July he said it was too early to consider another package.
"This time though, Bernanke suggested some of the stimulus should be directed at the credit markets - making credit more available to consumers, homeowners and businesses."
'Serious slowdown'
Asked by reporters whether the US was now in a recession, Bernanke said there was "a serious slowdown in the US ... whether it's called a recession or not is of no consequence".
IN DEPTH
How the financial bubble burstQ&A: The US financial meltdownReacting to the financial crisisWall Street gripped by uncertaintyTurner said Bernanke had been "very careful to avoid using the word "recession" as he would aware of the potential disastrous affects on markets if he was to further dent investors' confidence.
In a White House statement, George Bush, the US president, said he was "open" to the idea of a second economic stimulus plan.
Henry Paulson, the US treasury secretary, announced that nine major US banks had taken up a government offer to buy shares in their corporations.
"Our purpose is to increase confidence in our banks and increase the confidence of banks so that they will deploy - not hoard - their capital," he said.
"And we expect them to do so, as increased confidence will lead to increased lending." A total of $250bn has been set aside for the programme - part of the $700bn rescue package that was signed off by congress - and several other banks are also expected to apply.
'Increased confidence'
The Dow Jones index of leading US shares closed 4.7 percent, or 413 points, higher at 9,265 following what traders said was an increased confidence among investors who saw an easing of credit markets as a sign the government's attempts to aid the economy were working.
London's FTSE 100 earlier closed 5.41 per cent higher at 4,282.67 points. Shares on Paris' CAC index ended up by 3.56 per cent and Frankfurt's Dax closed 1.12 per cent higher.
The increases came after Sweden unveiled a plan to support banks with $200bn in credit guarantees in a move to improve liquidity and also said it would also create a $2bn "stability fund" to bail out any Swedish banks that run into solvency problems.
Japan's benchmark Nikkei 225 index rose by nearly 3.5 per cent in early trading on Tuesday to reach 9,319 points.
Al Jazeera and agencies