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WASHINGTON: The US government is to invest up to US$250 billion to buy up stakes in American banks. The Treasury has reversed course on its policy of avoiding such state ownership, in an effort to safeguard the financial system.
The move, which is designed to be temporary, comes as the US presidential candidates prepare for a final head-to-head televised debate before the elections.
US Treasury Secretary Henry Paulson said: "Today's actions are not what we ever wanted to do, but today's actions are what we must do to restore confidence in our financial system."
The US Treasury has just announced a record US$455 billion budget deficit. David Walker, the former head of the government's accountability office, said it is time to deal with America's indebtedness.
"Because we're mortgaging the future of our country, we're mortgaging the future of our children and grandchildren, that's an unacceptable path. We need to acknowledge the problem and the presidential leadership, whoever the American people decided to elect," said Walker.
One business that is being forced to deal with the new financial realities is Washington bakery, Cake Love. Like many American businesses, the shop's owner, TV chef Warren Brown, said he has been forced to cut costs as sales decline.
"It's just not going to do well until someone says, 'Hey listen, here are the real fundamentals of what we have to do', and break the bad news to people and everyone in America take the bad news and swallow the pill about what we have to do in terms of turning around the economy," said Brown.
Polling numbers have suggested that Republican presidential hopeful John McCain is bearing the brunt of people's frustrations about the economy. McCain has now revealed a new economic plan that he will put in place should he become president.
"On my orders, the Department of the Treasury will guarantee 100 per cent of all savings accounts for a period of six months. This will calm the understandable fears of widespread bank failure, while also restoring rational judgement to the choices of the market.
"As president, I will also act to protect investors, especially those relying on their investments for retirement," he said.
Polls have suggested that a majority of Americans think Democrat Barack Obama's leadership and economic plan will be more effective in riding out the economic crisis, and Americans will be watching the presidential candidates' debate carefully to assess each of their new ideas.
Republican strategists said McCain must work much harder to convince undecided voters if he is to overturn Obama's clear lead in the polls.
- CNA/so
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