From Chinese Press

US rescue package not a done deal yet

(People's Daily)
Updated: 2010-07-07 13:25

While testifying on Capitol Hill in late June about the government bank bailout program, namely, the Troubled Asset Relief Program, which is commonly referred to as TARP or RCP, a program of the United States government to purchase assets and equity from financial institutions, Treasury Secretary Timothy F. Feithner spoke in favor of the initiative.

His remarks, which seemed like a wishful thinking at the time, appear much far-sighted and prescient.

The action, which the Congressional Budget Office projected would ultimately yield 11 billion US dollars in taxpayer saving by the end of March 2010, was taken to mollify a few moderate Senate Republicans who support is essential to ratify a House-Senate compromise on a far-reaching overhaul of the financial system.

US Congress approved a revised 700 billion dollar package to bail out the beleaguered US financial sector in fall 2008, and to be specific on 18 November that year. This stimulus package has touched off a heated debate ever since its birth. Those who denounced the government bailout program and were in opposition to the Wall Street bailout, deem that it unfairly forced taxpayers to pay for bad bets by Wall Street.

From the statistics released by the US treasury, the bailout program has been carried out appropriately and contributed to stabilizing the US financial system. The comment has, however, proven neither that the program saved the US financial system, nor it indicate that the issues on the US fiscal and monetary policy and the financial monitoring setup have been settled. In fact, the cause of the in-depth and protracted US financial crisis has not yet been uprooted.

The Troubled Asset Relief Program, or TARP, which has traversed the George Bush's administration and succeeding Obama administration, is one of the four measures taken by the Federal Reserve to cope with the financial crisis. These vital measures are, among others, to ease the US monetary policy, to extend the financial policy (listing of all economic recovery measures, including the TARP program), to improve the monitoring, evaluating and reporting mechanisms of the financial institutions and to reform the system of payment and that for the administrative staff of banking institutions in particular.

Indeed, the large-scale bailout program by the US government and other forms of government intervention have attained effects to a certain extent and produce some side-effects at the same time: First, US debt has more than doubled in the last decade and now stands at just under 90 percent of annual gross domestic product (GDP). Second, non-performing loans (NPLs), which were at the heart of financial crisis, are yet to be resolved wholly. The public has plowed their savings into the US debt market and the commercial banks holding of treasuries have reached an all-time high. The Federal Reserve has a number of tools that will enable it to firm the stance of policy at the appropriate time… and at 1.4 trillion dollars, the Fed's Agency MBS purchases amount to 15 percent of the total market size. Theoretically, the US banking system is still run on a debt-based monetary system.

Third, with a marked change in its role as lender of last resort, Federal Reserve has purchased a lot of securities such as saving bonds and treasury bills to finance private lending institutions and, finally, as the US economic recovery takes longer time as expected, many American consumers are still struggling under the burden of unmanageable debt loads.

On a short run, US economy will not go on deteriorating due to the bailout program, but the credit of American banks is yet to resume fully. More importantly, the nation's economic recovery remains weak. Hence, the mission of the US bailout program, or TARP, is still unfulfilled, and so it is still not the opportune time to phase out the economic stimulus package at present.