Thread: Bush: Economic 'Period of Uncertainty'

Bush: Economic 'Period of Uncertainty'

MoneyNews
Monday, Feb. 11, 2008

WASHINGTON -- President Bush, acknowledging that the country is suffering through a period of economic uncertainty, called on Congress Monday to do more to help people and businesses hurt by the housing slump and credit crunch.
In a brief introduction to his annual economic report, Bush said the $168 billion economic rescue package passed by Congress last week will keep "our economy growing and our people working."

Still, others steps need to be taken to strengthen the economy, he said. The president exhorted lawmakers to make his tax cut permanent and do more to help struggling homeowners at risk of losing their houses.

Bush is expected later this week to sign an economic stimulus package that includes rebates of $600 to $1,200 to most taxpayers and $300 checks to disabled veterans, the elderly and other low-income people. "Money will be going directly to American workers and families and individuals," he said.

In addition, the package includes tax breaks for businesses and would take some steps to boost the ailing housing market.

To that end, the legislation would temporarily raise to $729,750 the limit on Federal Housing Administration loans and the cap on loans that mortgage giants Fannie Mae and Freddie Mac can buy. Raising that cap on Fannie Mae and Freddie Mac should provide relief in the market for "jumbo" mortgages — those exceeding $417,000. The credit crunch hit that market hard, making it very difficult, if not impossible, for people to get those loans. And, that has plunged the housing market even deeper into turmoil.

Bush urged Congress to pass additional legislation that would revamp Fannie Mae and Freddie Mac and modernize the Depression-era Federal Housing Administration, which insures mortgages for low- and middle-income borrowers. The president also said Congress should approve legislation allowing state housing agencies to issue tax-free bonds to help squeezed homeowners refinance their mortgages.

These and other steps could help struggling homeowners "weather turbulent times in the market," Bush said.

Describing the report to reporters, Bush said that the stimulus plan is "going to help deal with the uncertainties." As for the broader economic assessment, he said that it indicates "our economy is structurally sound in the long term and that we're dealing with uncertainties in the short term." The question, Bush added, is what can be done about it.

Fallout from the housing bust and harder-to-get credit has catapulted home foreclosures to record highs, has forced financial companies to rack up multibillion-dollar losses in bad mortgage investment, has rocked Wall Street and has dealt a powerful blow to the national economy.

The economy nearly stalled in the final three months of 2007, growing at a pace of just 0.6 percent. The odds of a recession have grown considerably over the last year, and an increasing number of analysts believe the economy may actually be shrinking now.

"Our economy is undergoing a period of uncertainty, and there are heightened risks to our near-term economic growth," Bush said in his economic report to Congress. He said the stimulus package should "insure against those risks."

The administration is hopeful the country will skirt a recession. The country's last recession was in 2001, shortly after Bush first took office.

The White House did not change its economic forecasts for this year and next, which were previewed in November. The administration is still predicting the economy will grow by 2.7 percent this year, as measured from the fourth quarter of this year from the fourth quarter of last year. That would mark a slight improvement from the 2.5 percent growth logged in 2007 but would still be considered a sluggish pace. The economy should pick up strength next year, growing by 3 percent.

The unemployment rate for this year and next should climb to 4.9 percent, according to the White House's projections. The jobless rate last year was 4.6 percent.

The big worry among economists is that consumers and businesses will hunker down more this year, throwing the economy into a tailspin.

The president's economic report acknowledged the danger.

"The tightening of credit standards raises the possibility that spending by businesses and consumers could be restrained in the future," according to the report. "Declines in household wealth may also limit consumer spending," it said.

Recent reports from major retailers showed that people tightened their belts. Economists say some homeowners have gotten more cautious in their spending as they have watched their single biggest asset — the value of their home — get dragged down by the housing slump. Moreover, high energy prices have also weighed on shoppers.

Bush again renewed his campaign for Congress to make his tax cuts permanent. "Unless Congress acts, most of the tax relief that we have delivered over the past seven years will be taken away and 116 million American taxpayers will see their taxes rise by an average of $1,800," the president said.

And, he made a fresh call for Congress to approve pending free-trade agreements with Colombia, Panama and South Korea. Bush said those deals would expand sales opportunities for U.S. companies, thus providing "greater access for our exports and supporting good jobs for American workers."

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Bush can save $1.4 billion by withdrawing the Merida Initiative which is a 'stimulus' program for Mexico.