By Jeannine Aversa, AP
WASHINGTON — The U.S. economy shot warning flares on Wednesday that it was still in profound trouble despite the government’s latest financial rescue plan.
Wall Street noticed and shares sank on worries the U.S. was in a recession or would soon be in one. The market for lending between banks — a key gauge of the plan’s effectiveness — remained tight, although there were some signs of improvement.
President George W. Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke sought to reassure anxious Americans that relief will come, but it will take time and patience for the plan’s unprecedented steps to stabilize the system, induce banks to lend again, and — in time — help improve the economy.
Bush, in a meeting with his Cabinet, said he’s confident that “in the long run, that this economy will come back.”
Even as he spoke, the economy was showing the kind of hurdles it has to leap. Retail sales slumped in September and wholesale prices remained high.
“This will take time. There will be challenges,” Paulson said on ABC television’s “Good Morning America.” He acknowledged that he initially opposed this type of government intervention into the banking industry but that new facts changed the circumstances in recent days.
Paulson said, “There’s no doubt that the way to get the maximum bang for the taxpayers here was to invest in banks.”
Bernanke also called for patience. He said the economy was currently battling a severe credit crunch, slowdowns in consumer spending and business investment and rising unemployment.
“Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away,” Bernanke said in a speech to the Economic Club of New York.
The Fed chairman, who has worked closely with Paulson in the current crisis, said the government’s new powers under the $700 billion financial bailout package passed by Congress on Oct. 3 should help reduce risks and restore confidence.
“We now have the tools we need to respond with the necessary force to these challenges,” Bernanke said.