Confidence a key to recent economic initiatives, U. of I. expert says

Jul 25, 2008

Restoring confidence in the sputtering U.S. economy is at the heart of recent moves to shore up the nation's lagging financial and housing markets, a University of Illinois economist says.

Anne Villamil says propping up faith in an economy teetering on the brink of recession is as important as more tangible initiatives such as financial lifelines for cash-strapped mortgage lending giants Fannie Mae and Freddie Mac.

"Savers must be confident that they will have access to their funds," she said. "Borrowers must be confident they can obtain credit. Maintaining the confidence of foreign lenders is especially important."

China and Japan are the two top stakeholders in the growing U.S. foreign debt, and jitters could affect future loans, Villamil said.

Japan also has a reported $56 billion stake in Fannie Mae and Freddie Mac, which own or insure 40 percent of U.S. residential mortgages and would qualify for unlimited amounts of government credit under a House bill approved Wednesday.

"When you are a debtor, as the U.S. now is and will be for some time, it is important to have a good relationship with your lenders," she said. "Were the U.S. to face difficulty finding lenders abroad, interest rates would rise and the U.S. economy would be under even more pressure."

The House bill also includes $300 billion to provide affordable mortgages for struggling homeowners and a $7,500 tax credit for first-time homebuyers. Senate approval is expected within days, and President Bush earlier dropped a threat to veto the legislation.

Villamil says the housing market and U.S. economy continue to struggle despite aggressive moves by the Federal Reserve, Treasury Department and Congress. Overall, home prices continue to fall and default rates continue to rise.

"Surging energy prices add to the strain, as do the rising levels of U.S. government debt and consumer debt," she said. "Unfortunately, there is no quick fix for this adjustment problem. These problems will continue to be challenges for the new administration."

Source: University of Illinois at Urbana-Champaign

Explore further: New anthology offers comprehensive insight into the life and works of Margaret Thatcher

add to favorites email to friend print save as pdf

Related Stories

How the hummingbird achieves its aerobatic feats

1 hour ago

(Phys.org) —The sight of a tiny hummingbird hovering in front of a flower and then darting to another with lightning speed amazes and delights. But it also leaves watchers with a persistent question: How ...

'Mind the gap' between atomically thin materials

2 hours ago

In subway stations around London, the warning to "Mind the Gap" helps commuters keep from stepping into empty space as they leave the train. When it comes to engineering single-layer atomic structures, minding ...

Seychelles poachers go nutty for erotic shaped seed

2 hours ago

Under cover of darkness in the steamy jungles of the Seychelles thieves creep out to harvest the sizeable and valuable nuts of the famous coco de mer palm, and their activities are threatening its long-term ...

Recommended for you

James Watson's Nobel Prize to be auctioned

Nov 25, 2014

Missed the chance to bid on Francis Crick's Nobel Prize when it was auctioned off last year for $2.27 million? No worries, you'll have another chance to own a piece of science history on Dec. 4, when James D. Watson's 1962 ...

Engineers develop gift guide for parents

Nov 21, 2014

Faculty and staff in Purdue University's College of Engineering have come up with a holiday gift guide that can help engage children in engineering concepts.

User comments : 0

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.