As If One ‘W’ Isn’t Enough

Posted In: Bailout, Banking Crisis, Central Banks, Credit, Economy, Employment, Federal Reserve, Financial Markets, Interest Rates, Investment Banks, Recession, Stimulus Package, Taxes, U.S. Government, U.S. Treasury Dept.

Yesterday, a senior official in the U.S. Treasury Department said the U.S. economy could improve slightly in the second half of 2008, and that there are some encouraging signs in the credit markets. David McCormick, Under Secretary for International Affairs, said the improvement would be due to a fiscal stimulus of $150 billion, which would help create 500,000 new jobs this year.

The United States has been busy trying to fight off an economic slowdown. Reuters’ Surojit Gupta and Rajkumar Ray wrote yesterday:

To counter the problems faced by the world’s largest economy, the Federal Reserve has cut its benchmark interest rate by 300 basis points since September and is expected to cut the Fed funds rate further at its meeting next week.

It has also provided billion of dollars in liquid funds to near-frozen markets and stepped in to prevent the collapse of investment bank Bear Stearns.

Meanwhile, under a Federal Government fiscal stimulus program, 130 million Americans will receive tax rebates this year and in 2009.

Because of these measures, McCormick said:

We will begin to see a slight improvement in the back half of 2008 and obviously carry that momentum in 2009. But make no mistake, a very challenging time for the economy.

Challenging, indeed. Last week, the head of a U.S. business group warned the world’s largest economy may see a “double dip” recession if stimulus efforts by the Federal Reserve and U.S. government fail to take hold. According to the Agence France-Presse on April 17, Harold McGraw, the head of publishing giant McGraw-Hill and chairman of the Business Roundtable (which represents chief executive officers of leading American companies), said:

If, after the economic stimulus package takes effect and we get into (20)09, and the … lower interest rates do not kick in, there is a probability of (a) double-dip recession…

A growing number of economists and analysts fear that the U.S. economy might slip into a recession, then back again after a brief recovery, in a W-shaped “double-dip” recession.

Source: Children Of The World

The French news agency also reported that McGraw, who was in Tokyo for a one-day business summit with business leaders from the Group of Eight (G8) nations, warned that the credit crunch would continue until the end of this year. He said: