US Needs $700bn To Avoid Disaster
News.Sky.com (UK)
September 18, 2008

The cash is likely to come from the country's expanding national debt, which currently stands at almost ten trillion dollars.

Bush is urging lawmakers to move quickly as negotiators from Congress and the White House work through the weekend to thrash out details of the draft bill.

The US Treasury admits the move to guarantee bad mortgages is risky, but says it is necessary to avoid sweeping job cuts and a further housing crash that would cripple the American economy.

Under the taxpayer-funded plan, the government would buy, or commit to buy, "mortgage-related assets from any financial institution having its headquarters in the United States."

The plan also calls for a 6.6% increase in the permitted limit of US national debt to $11.315 trillion.

In his weekly radio address, Bush stressed that action was vital, not only for Wall Street but also for the high street.

Further pressure on the nation's financial markets could reverberate and "cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, cars, and college tuitions," he warned.

Elsewhere, Mr Bush said it was a "big package because it was a big problem".

"I will tell our citizens and continue to remind them that the risk of doing nothing far outweighs the risk of the package."

Administration officials and congressional leaders hope a deal can be approved by Congress by the end of next week.

Stock markets around the world soared in value after the US Treasury announced it was stepping in to deal with the crisis.

In London, the FTSE added £103bn to the value of Britain's biggest companies in its biggest-ever one-day rise, while New York's Dow Jones closed 368.75 higher.

Other European stock markets were also in better shape, with Paris's CAC 40 9% ahead, and Frankfurt's Dax 6% up.

But while there is some cause for optimism, Anatole Kaletsky, economic commentator for The Times, told Sky News there could be big problems ahead for Europe.

He said: There are plenty of banks outside the US, including in the UK, which are potentially just as exposed, if not more exposed, to a collapse in the housing market, which is basically what triggered this whole process in the US.

"Now, the fall in the housing market in the US is arguably almost over. In Britain, it's only just started... and the chances are that our housing market will fall at least as much as the one in America.

"Therefore, our banks are equally vulnerable and will need government support."

A US bankruptcy court has approved the sale of key assets of fallen US investment bank Lehman Brothers to its British competitor Barclays.

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