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 | | The subprime mortgage crisis is at the root of US economic problems |
The US government has announced it is pumping $800bn into the country's economy as news emerged its gross domestic product (GDP) shrank by more than expected.
The injection was announced on Tuesday as the US commerce department reported the US GDP fell by 0.5 per cent - its largest fall since the third quarter of 2001 when the September 11 attacks took place. Earlier reports had predicted a 0.3 per cent decline. The cash comes on top of the $700bn bailout agreed in October. Many analysts believe the US has already joined Europe in recession, though it will take another quarter of contraction to meet its widely used definition of two consecutive quarters of declining output. The Federal Reserve, the US central bank, announced on Tuesday it would inject the $800bn into the economy by purchasing mortgage and other asset-backed securities. The bank said it would buy $100bn of the securities from housing-related Government-sponsored enterprises including Fannie Mae and Freddie Mac in the next week, and buy another $500bn in a process started by the end of this year. Separately, the bank said it would launch a programme to buy up to $200bn in securities backed by student loans, vehicle loans, credit card loans and other loans in a further effort to boost credit markets. The new efforts come as part of a move to restart consumer credit markets that froze up in October and bring down borrowing costs for the housing market, which remains at the centre of US economic woes following the subprime mortgage crisis.
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Tags: US government GDP
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