Crisis hits the ‘real economy’
02 Oct 2008
New York / London — Shockwaves from the global credit crisis spread yesterday, threatening industry and jobs worldwide and putting pressure on the U.S. congress to finish up a $700 billion bail-out of the U.S. financial sector.

The fate of the rescue plan, passed by the senate 74-25 on Wednesday night, lies with the House of Representatives, which is expected to vote today.

The house rocked global markets on Monday by rejecting an earlier version of the plan, which President George W. Bush has called the “essential to the financial security of every American”.

European Central Bank president Jean-Claude Trichet said economic activity is weakening in Europe, while in the U.S., data suggested a recession may be approaching and opened the door to interest rate cuts.

U.S. factory orders fell four percent in August and manufacturing in September was at its weakest since the 2001 recession. Jobless claims rose to their highest level in seven years, ahead of September payrolls data due out today.

Oil prices fell almost $3 a barrel on an expected slowdown in economic activity around the world. The dollar rose against the euro after Trichet’s comments and major U.S. stock indexes fell more than two percent.

At the Paris Auto Show, top automakers warned of tough times, as evaporating credit cuts consumer demand and could force production cuts and job losses.

“The problems of subprime and credit crunch are now all over the world. The downturn is longer and deeper than we foresaw a year ago,” Ford chief executive Alan Mulally said.

In a week marred by bank rescues across Europe, French President Nicolas Sarkozy’s office said he would host the leaders of Britain, Italy, Germany and the ECB tomorrow to discuss a response to the credit crisis. Sarkozy denied reports a $415 billion plan akin to the U.S. bail-out is under consideration.

The U.S. bail-out plan, equivalent to $2 300 per American, is to reinvigorate credit markets and interbank lending that has frozen up while banks staggered under the weight of failed mortgages.

It has also stirred criticism from those who see it as help for a Wall Street guilty of taking reckless risks for short-term profit.

Under the deal, the Treasury would take on illiquid assets held by banks in the hope of restoring confidence and unfreezing credit markets vital to the wider economy.