U.S. economy teeters on the brink

Bush and Federal Reserve chairman endorse $100-billion package in effort to prevent recession as housing mess hammers banks, consumers and investors

In a bid to save the world's largest economy from recession, U.S. President George W. Bush and central bank chief Ben Bernanke yesterday endorsed a $100-billion stimulus package as the spreading housing mess continued to hammer banks, consumers and investors.

The rare plug for fiscal action comes as a growing number of economists say the United States is either in recession or perilously close to it. “The United States has now effectively entered into a serious and painful recession,” said economist Nouriel Roubini of New York University.

Prof. Roubini said all of the keys to economic health are headed in the wrong direction, including the housing market, credit availability, the job market and business spending. Add to that a run-up in oil and gas prices, and the consumer is likely to take it on the chin in 2008, he said.

Another major Wall Street investment bank acknowledged yesterday that it vastly underestimated the cost of its misadventures in the subprime mortgage market. Merrill Lynch & Co. – the world's largest stockbroker and one of the major backers of mortgage bonds – reported the worst quarter in its history, losing $9.8-billion (U.S.) in the final three months of last year and wiping more than $16-billion worth of bad loans off its books. That raises Merrill's housing-related losses to nearly $24-billion in 2007.

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