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Obama presses case for stimulus



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WASHINGTON (Reuters) – U.S. President Barack Obama took his case for an $800 billion (538 billion pounds)-plus stimulus package directly to the American public, but investors worried about whether a separate bank bailout plan would be enough to stem the global financial crisis.

Fearing deepening banking problems, currency markets wobbled on a report in Japan’s Nikkei business daily that Russia will request negotiations with European and other foreign banks to postpone repayment on up to $400 billion of private sector debt.

The euro fell over 1 percent, but trimmed losses after the head of Russia’s regional banks association, Anatoly Aksakov, said the report — which had quoted him — was untrue.

U.S. Treasury Secretary Timothy Geithner was due to unveil a plan to rescue stricken banks later on Tuesday, while the stimulus bill was expected to be passed by the Senate but could still faces days of wrangling before its final approval.

At a televised prime-time news conference on Monday, Obama urged Congress to approve the bill without delay before the recession worsened.

“With the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life,” Obama said.

“This is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression.”

Dallas Federal Reserve President Bank Richard Fisher said he does not expect the U.S. economy to grow in 2009, and that “a lot hangs” on the impact of the stimulus package

The global downturn began with a U.S. housing market slump that triggered a crisis in debt-derivatives markets and wiped out nearly $14 trillion in global stock market value last year as banks ran into trouble, requiring government bailouts.

The financial crisis has in turn triggered recessions in all of the big industrialised economies, sharp slowdowns elsewhere and put millions of jobs on the line.


Geithner was set to present his bank rescue plan at 11 a.m. (4 p.m. British time), outlining how the administration will revamp the bailout programme his predecessor, Hank Paulson, persuaded Congress to approve last year.

Three sources briefed on the plan told Reuters it included a public-private partnership to take up to $500 billion of bad assets off financial institutions’ balance sheets, but not a standalone government “bad bank.”

Asian share indexes and U.S. stock futures fell due to uncertainty about the details of the plan.

“It’s starting to seem as if the economic stimulus plan will be approved one way or another, but the bank bailout is really important, and this uncertainty is growing,” said Takashi Ushio, head of the investment strategy division at Marusan Securities.

“What sort of partnership? Will the $500 billion be enough? There’s a lot of unknowns that make it hard to trade at this point, though at the very least it does seem as if the government may abandon the idea of handling the ‘bad bank’ on its own.”

The U.S. stimulus bill — a mix of tax cuts and public spending measures — passed a key procedural hurdle in the U.S. Senate on Monday, paving the way for the chamber to pass the bill on Tuesday.

The Senate version must be reconciled with one the House of Representatives has passed, which may require several days of negotiations. Obama wants a final version by this weekend.


The Nikkei said a proposal for postponing private sector debts had been submitted to the Russian government and some foreign banks had already agreed to negotiations.

But Aksakov said the report was inaccurate, adding that an idea for a unified restructuring plan for Russian corporate debt was discussed at bankers’ meeting last week but no proposals had been put to the government.

A Russia government spokesman later said it was not considering a corporate debt restructuring plan and was not in talks with foreign banks on such a move.

The Nikkei report follows a cut in Russia’s sovereign debt rating last week that underscored worries a downturn in Eastern Europe could add another drag on the euro zone.

Western European banks have lent heavily to Russia and other Eastern European countries.

Highlighting how the downturn has spread from the rich world to export-driven emerging markets, South Korea’s new finance minister said its economy would contract this year for the first time since the 1997-98 Asian financial crisis.

Yoon Jeung-hyun said Asia’s fourth largest economy would likely shrink by 2 percent due to falling domestic demand and exports, a dramatic revision after the government had previously said it aimed to achieve 3 percent growth.

In China, consumer price inflation slowed to 1 percent in January from 1.2 percent in December, the ninth consecutive monthly drop in consumer inflation, giving the central bank plenty of room to cut interest rates further to support the economy and stave off the threat of deflation.

In Britain, which the IMF expects to be the worst-hit of the big developed economies by the recession, retail sales rose in January for the first time since last May, but the increase was driven by food sales and heavy price cutting.

In the gloomiest prediction yet by a senior minister, Schools Secretary Ed Ball, a close ally of Prime Minister Gordon Brown, said the country faced the worst recession in more than 100 years.

“This is a financial crisis more extreme and more serious than that of the 1930s,” he said. “The economy is going to define our politics … in Britain in the next five years, the next 10 years and even the next 15 years.”

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