Since late last year, U.S. gross domestic product has grown at a dramatically reduced pace, but managed to avert negative growth that would formally signal a recession.
Appearing on CBS' Face the Nation program, Treasury Secretary Henry Paulson did not deny today's tough economic climate, but expressed confidence in America's long-term outlook.
"We are going through a challenging time with our economy," said Paulson. "The three big issues we are facing right now are, first, the housing correction. Secondly, turmoil in the financial markets, and, thirdly, the high oil prices, which are going to prolong the slowdown. But our economy has very strong long-term fundamentals."
Since experiencing a boom from 2002 to 2006, housing values have shrunk in most parts of the country. In addition, the United States has experienced a rash of home foreclosures that have shaken confidence in lending institutions. Last week, signs emerged that the fallout is affecting the viability of two giant government-backed mortgage institutions (Fannie Mae and Freddie Mac), while at least one private domestic bank saw panicked customers lining up at the doors to withdraw funds.
Secretary Paulson says swift action is needed to reassure capital markets and thereby provide a boost to the housing sector.
"The key to getting through this tough economic period is to have the housing correction work its way through quickly, and to be able to get housing prices to stabilize," he said. "And a key there is to have buyers come into the market. And buyers need financing. So these [mortgage] institutions are very important."
The Bush administration is urging Congress to allow the federal government to purchase equity stakes in the troubled mortgage institutions, and to expand the federal credit lines available to them.
Regarding the public's fears of bank failures, Paulson reminded Americans that most bank accounts are federally insured up to $100,000, so any urge to suddenly withdraw funds is unwarranted.
On energy matters, the treasury secretary said high fuel costs will continue to dampen economic prospects, and that America needs to produce more oil while consuming less. President Bush has urged Congress to authorize expanded drilling in waters off America's coastlines and in some ecologically-sensitive areas, such as a wildlife refuge in Alaska.
But Democratic House Speaker Nancy Pelosi says additional drilling will take years to generate oil, and the added supply will only minimally affect gasoline prices. Speaking on CNN's Late Edition program, Pelosi said there is a more immediate solution: tapping into the federal government's oil stockpile, the Strategic Petroleum Reserve.
"What we [Democrats] are saying is, 'Mr. President, free our oil from the Strategic Petroleum Reserve.' There are over 700 million barrels of oil, and we are saying [to] take 10 percent of that, which has been paid for by the American taxpayer, and use it to put it on the market," said Nancy Pelosi.
The Strategic Petroleum Reserve was created to provide a buffer in case of a major disruption in oil supplies that threatens America's national and economic security. Pelosi says record-high oil prices amid what she termed an economic recession warrant its use.
After months of near-constant rises, oil prices fell precipitously to
under $130 a barrel last week.
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