Treasury
U.S. Federal Reserve and government steps taken to calm financial markets and ease the housing crisis are working, according to a Treasury Department official.
“Markets appear to be gaining confidence and the availability of credit has improved modestly,'' Clay Lowery, the Treasury's assistant secretary for international affairs, said in the text of a speech today in Tokyo. The Fed's interest-rate cuts and a government economic stimulus package have helped to ease market turmoil and support consumer spending, he said.
U.S. stocks last week dropped the most since February, partly on concern the housing recession will deepen. A May 23 report showed the supply of unsold U.S. homes reached a record in April. Defaults on subprime mortgages have prompted lenders to restrict credit, while falling property values have given buyers reason to delay purchases.
“Markets have calmed down since March, and we are on a gradual mending process,'' said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “But neither Lowery nor Secretary Paulson can dismiss the possibility of some more bumps in the road.''
Treasury Secretary Henry Paulson said last week that conditions have improved to the extent that economic forces rather than credit concerns will influence financial markets. The collapse of the U.S. subprime loan market has prompted global financial institutions to report writedowns and credit losses exceeding $370 billion since the beginning of 2007 cash advance now.
Market Forces
Lowery said the government has “sought to avoid overreacting with regulations or policy responses that would stifle innovation or distort the natural self-correcting forces of markets.'' Paulson opposes congressional efforts to use government funds to bail out homeowners at risk of foreclosure.
Separately, Lowery urged Japan to open itself to more foreign direct investment. “There are concerns among investors that Japan may not be fully committed to attracting FDI,'' the Treasury official said.
A panel advising Japan's Cabinet Office last week recommended that the government allow more investment from abroad by cutting corporate taxes and encouraging companies to improve governance. Between 1997 and 2006, Japan ranked last among major economies as a destination for FDI, according to the Organization for Economic Cooperation and Development.
“Urging Japan to open itself up to more foreign investment is a standard plea from U.S. officials, and it will likely remain a slow process,'' said Cohen at Action Economics. Still, the panel's proposal “suggests they might be prepared to open up a bit.''