Tuesday, November 04, 2008

Amid Numerous Negative Economic Indicators, Treasury Considers Expanding Rescue Efforts

Factory Orders Fall As Businesses Cut Back, New York Times
US Manufacturing Crashes to 26-year Low, Financial Times
US Personal Spending Drops in September, Financial Times
Treasury Weighs Purchasing Stakes in More Firms, Reuters

The week opened with a number of dismal reports and financial indicators, all of which contributed to a continued negative outlook for the United States and global economies. First, the Institute for Supply Management reported that, for the month of October, its index of factory activity in the United States fell to its lowest point in over twenty-six years. Also, the United States Department of Commerce announced that factory orders have also taken a significant drop, with the primary indicator of factory orders (which excludes aircraft and automobile orders) taking its largest fall since 1992. Finally, it was also announced that, while personal income grew slightly in September, personal spending by Americans saw its biggest drop since 1991.

Amid this string of troubling economic reports and the inherent uncertainty of the United States' presidential election, the Treasury Department announced that it is considering an expansion of its efforts to rescue struggling companies in the financial sector. Specifically, the Treasury Department announced that it is considered investing additional billions of dollars of its Troubled Asset Relief Program (TARP) funds in bond insurers and other financial services companies, such as CIT Financial and General Electric's Finance Company. These investments would indicate a willingness by the Treasury to invest to a broader spectrum of financial firms than the banks and insurers in which TARP funds have been invested thus far.

Discussion Questions:
1. Do the downturns in manufacturing, factory order, and personal spending indicators signal that the credit crisis has fully permeated all levels of the American economy--from Wall Street to "main street"?
2. Should the Treasury expand its TARP investments to specialized financial services companies?
3. Is this the appropriate time for an expansion of the Treasury's rescue program? Should such an expansion, or any major change in Treasury activity, be delayed until the beginning of the next President's administration?

1 comment:

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