Federal Reserve to give $800 billion stimulus

The Federal Reserve announced another $800 billion injection into the US economy in an effort to further stabilize the financial system. ┬á US Secretary Henry Paulson said basic lending such as credit cards, car loans and student loans had basically come to a halt in October, as financial institutions are reluctant to lend. Paulson said the stimulus package is aimed at making more lending available to consumers, and getting the basic types of lending back to more normal levels. ┬á Roughly $600 billion will be used to buy up mortgage-backed securities in an effort to reduce the cost of home mortgages and increase their availability, while the remaining $200 billion will be given to holders of securities backed by consumer loans, such as credit cards and student loans. ┬á The serious financial crisis that is currently hitting markets worldwide started over a year ago with increased defaults on sub-prime mortgages. Now, after GDP fell at a higher than expected annual rate of 0.5 percent in the third quarter, and the US economic output shrinking at a faster pace than predicted, the Federal Reserve and the White House are anxious to take action. ┬á Consumer spending has decreased by its largest amount in 28 years, and the Standard & PoorÔÇÖs/Case-Shiller national home price index dropped by a record 16.6 percent compared to last year- taking prices down to levels not seen since early 2004. ┬á President-elect Barack Obama expressed urgency in a budget reform, saying it was ÔÇ£imperativeÔÇØ with the economy in crisis. ÔÇ£It is not an option,ÔÇØ he said. ÔÇ£ItÔÇÖs a necessity.ÔÇØ ┬á News of the latest rescue plan was generally welcomed by analysts. ÔÇ£They are getting to the heart of the problem, itÔÇÖs clean, itÔÇÖs quick, itÔÇÖs direct,ÔÇØ said Todd Abraham of Federal Investors in Pittsburg. ÔÇ£ItÔÇÖs a good way to bring down mortgage rates, because at the end of the day they have to stabilize the housing market.ÔÇØ