The US Congress has finally passed its bailout bill, with the House voting 263 - 171, and the President quickly signing it into law. It had passed the US Senate earlier. But it remains to be seen whether this US$700 billion Paulson-Bernanke plan will unfreeze the credit markets. In an ominous sign, California, the richest state in the US, has had to warn that with the credit markets frozen, it may soon be unable to pay its bills, and it may need federal assistance. It is doubtful this will be the only US state (or county, or city) in this position. Such claims on US federal funding could be an enormous new burden, on top of the bank bailout arrangements just approved. US stock markets have reacted with muted optimism. In fact, at the same time Congress was approving its funding package, US data showed more significant weakness in the overall economy, with US payrolls falling slightly more than experts were expecting. It is doubtful, however, that this latest $700 billion will solve the fundamental problems facing credit markets and banking around the world. Europe has huge problems in the same area, with the added issue of consumers who seem more skittish than their US counterparts. For our perspective of the forces at play now, and how they may affect New Zealand, see Bernard Hickey's latest opinion piece here.
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