Business | Economy
Paulson says worst of credit crisis is over
But US Treasury chief acknowledges rising gas prices will blunt effect of 130m economic stimulus cheques.
- AP
- Published: 00:43 May 9, 2008
- The worst of the US's credit crisis may have passed, Treasury Secretary Henry Paulson said, though he acknowledged rising gas prices will blunt the effect of 130 million economic stimulus cheques
- Image Credit: AP
Washington: The worst of the US's credit crisis may have passed, Treasury Secretary Henry Paulson said, though he acknowledged rising gas prices will blunt the effect of 130 million economic stimulus cheques.
He ruled out a second stimulus package for now.
Paulson said the turmoil that has gripped Wall Street and that took a turn for the worse again in March has eased somewhat. "There's progress," he said. "I think we're closer to the end of this" than to the beginning.
A prolonged housing slump, a severe credit crisis and soaring energy costs have pushed the economy to the edge of a recession. To help cushion the blow, the Bush administration and Congress speedily enacted a $168 billion stimulus package of tax rebates for people and tax breaks for businesses.
With oil costs surging to record levels and gasoline prices hovering around all-time highs above $3.60 a gallon, Paulson acknowledged that pain at the pump would diminish the impact of the stimulus payments that are designed to give the economy a jump-start.
"Obviously, the high price of gasoline is unwelcome and is a challenge and is a headwind," he said.
The first batch of rebate payments started hitting bank accounts last week through direct deposits.
"We will get some help from the stimulus," Paulson said. "Later this year, I expect growth will pick up." Still, he acknowledged that the country was facing "tough times" as people struggle with soaring gasoline prices, higher medical costs and a weak jobs market.
Paulson said the steep slump in housing, which has depressed home sales and prices, remained "the biggest risk to the economy." Although he said he did not know when the worst of housing's problems will pass, he suggested there will still be strains in the months ahead.
"Even the optimists here believe that you're going to continue to see in the next several months" newspaper headlines that will say prices have declined even further and foreclosures have increased, he said.
"That's what happens during a correction." However, Paulson said he believes the turmoil that began last August in credit markets has calmed since mid-March when the crisis claimed its largest victim with the forced sale of Bear Stearns, the US's fifth largest investment firm, to JP Morgan Chase. "Again, I think we're on the right path," he said.
Even though the markets are "somewhat calmer now," Paulson said large portions of the credit markets - ranging from mortgages to student loans to loans that banks make to each other - still are not functioning in a normal way. "I wouldn't be surprised at all to see more bumps in the road," he said.
Paulson rejected for now the notion of a second stimulus bill, including such things as extending unemployment benefits. He said it would be unprecedented to extend unemployment benefits from the current 26 weeks with unemployment at the relatively low level of five per cent.
He said the administration's focus at the moment is on getting the current 130 million stimulus payments to the people.
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