Bank chief speaks as US admits recession

As one of the President's top economic advisers admitted parts of the US are in a recession, the Bank of America's chief executive vowed to plough bail-out cash into loans and profit growth.

Until last night, the White House had been unwilling to use the term "recession", both because the technical definition has not been met and because it carries such negative weight.

Many analysts predict the economy could contract over the final three months of this year and in the first 90 days of 2009. That would meet the classic definition of a recession - two consecutive quarters of economic contraction.

Some economic analysts say the sagging economy already is in recession.

US Federal Reserve chairman Ben Bernanke, scheduled to appear before the House Budget Committee later, is likely to once again tell Americans that there will not be a quick fix.

Even if the turmoil gripping Wall Street were to let up and badly shaken confidence in the banking system fully restored, a "broader economic recovery will not happen right away," Mr Bernanke warned last week. "Economic activity will fall short of potential for a time," he said.

The Fed chief has left the door open for further interest rate reductions to provide some relief.

Dropping rates might induce consumers and businesses to stop burrowing and instead boost their spending, an important ingredient to energise overall economic activity.

Speaking in a broadcast interview last night from California, the chairman of the White House Council of Economic Advisers Ed Lazear noted that the national unemployment rate stands at 6.1%.

Mr Lazear said some parts of the country, such as California, have even higher rates of people out of work.

"We are seeing what I think anyone would characterise as a recession in certain parts of the country," Mr Lazear said.

The White House and Congress hope a US$700bn (€518.7bn) rescue plan will inject cash and confidence into the lending industry and recharge the economy. Mr Bush repeatedly told the nation that it will take a while for credit lines to thaw.

Mr Lazear gave a slightly more specific time frame, saying it would take "a few months before we really see a significant impact".

"But we've seen impacts already," he said. "What we're seeing is that banks are now willing to lend to one another. That's a huge plus for the economy because the big problem has been that banks have been unwilling to trust one another."

Democratic politicians' plan to consider a post-election stimulus package that could cost as much as US$150bn (€111.1bn). Mr Lazear said some of the ideas being proposed, such as road and bridge projects, are too slow and too focused on one industry to give the economy a boost.

"They may be good policy. That's something that Congress has to decide," he said. "But we can't really think of that as a stimulus that's going to get the economy turned around in the short run."

Mr Lazear spoke on CNN's 'Late Edition'.

Bank of America chief executive Kenneth Lewis, meanwhile, says the US$25bn (€18.5bn) the US government is injecting into his bank will be put to work making loans and will be paid back at the latest in five years.

Mr Lewis confirmed last night that top executives were given no option last week when US Treasury Secretary Henry Paulson unveiled a plan for the government to pour US$125 (€92.6bn) into nine major banks. In return, the government will get ownership stakes in the financial institutions.

Mr Lewis said Paulson told the executives that the money being loaned to the banks to jump-start frozen US lending was "the right thing for the American financial system, and therefore it was the right thing for America".

South Korean share prices fell this morning after its government announced measures to shore up the country's financial system amid the global credit crisis.

The Korea Composite Stock Price Index declined 1.2% to 1,166.32 in late morning trading, giving up earlier gains of as much as 2.4%. The Kospi has fallen 38.5% in 2008.

The government said yesterday it will secure banks' maturing foreign currency debt for three years on loans taken out from Monday until June 30, 2009.

The announcement came as analysts have questioned South Korean banks' ability to acquire dollars to pay off maturing foreign loans amid the global credit crunch.

Meanwhile, it was revealed that China's economic growth has slowed to a still-robust 9% in the third quarter of this year, prompting leaders to pledge new measures to counter the economic slowdown and cushion the impact from the global credit crisis.

Growth in the first nine months of the year was 9.9% over a year earlier, the National Statistics Bureau reported Monday. That compares with 11.9% growth for all of 2007.

"There are no signs of a definite recovery from the financial crisis," bureau spokesman Li Xiaochao said in a nationally televised news conference.

Politically sensitive inflation slowed in September to a 15-month low of 4.6%, the bureau reported. That compares with a 12-year peak of 8.7% hit in February.

Leaders meeting over the weekend pledged new measures to spur lending and stabilise the country's volatile financial markets.

"Financial, credit and foreign trade measures will be carried out in the near future in response to the slowing trend of the country's economic growth," the official Xinhua News Agency said in a report late last night, citing a meeting of the State Council, or Cabinet.

Share prices have continued to fall despite a raft of market-boosting measures. On Monday, the benchmark Shanghai Composite Index was down 1.3 % at 1,906.34 by mid-morning.

Economists have cut China's growth forecasts to as low as 9% for the year. That would be the highest rate for any major economy, but Beijing needs to keep growth robust to reduce poverty and minimise job losses that could fuel political tensions.