White House Spotlights Need To Break Back Of Credit Crunch
WASHINGTON -- President Bush, in an unusual meeting on Friday with Federal Reserve Board Chairman Alan Greenspan and top economic advisers, expressed alarm that businesses are not getting enough credit to expand and create new jobs.
Mr. Bush urged the Fed and other federal banking regulators to make sure banks get the message that they should not refrain from making loans to sound customers, White House spokesman Marlin Fitzwater told reporters.
The President's appeal -- which follows a White House campaign for easier credit earlier this year -- came in a gathering with members of the cabinet-level Economic Policy Council. The council includes Treasury Secretary Nicholas Brady, Michael Boskin, chairman of the President's Council of Economic Advisers, and the heads of several other federal agencies. Mr. Greenspan, who is not a standing member of the cabinet council, was asked to sit in on the meeting.
The meeting comes amid growing uneasiness among some private economists that the recovery may be fading and that more Fed cuts in interest rates may be needed, although administration officials continue to insist the recovery is unfolding according to earlier predictions for a mild comeback.
Mr. Fitzwater told reporters that the focus of the meeting was the ongoing credit crunch. "There were a lot of horror stories" about businesses that could not get credit, particularly small businesses that generate most of the jobs in the economy, said Mr. Fitzwater.
Large firms, by contrast, seem to have adequate financing through the stock and bond markets, the President's spokesman said.
"The President is particularly concerned that the bank examiners not be providing a chilling effect on the availability of money at a time when interest rates are going down and there should be money for economic expansion," said Mr. Fitzwater.
Mr. Fitzwater said interest rates were not the subject of much discussion at the meeting. He noted that the prime lending rate, home mortgage rates, and other rates have come down recently and added that "there was a general consensus that the economy is getting stronger."
But recent economic indicators from the government have not been encouraging. Last week, the Commerce Department reported its final estimate for second-quarter gross national product, showing that U.S. output fell 0.5% for the third quarter in a row. That was more than last month's estimate of a 0.1% decline.
On Friday, the Commerce Department reported that personal spending, which accounts for about two-thirds of all U.S. output, rose an anemic 0.1% last month. Sales of automobiles have remained sluggish, and new home sales fell in August for the second month in a row. So did consumer confidence, according to the Conference Board's report.
On Tuesday, Commerce is due to report on the government index of leading economic indicators. Analysts expect the index to show a decline, breaking a six-month string of increases.
President Bush called the cabinet council meeting Friday with Mr. Greenspan primarily to do "a little arm-twisting" to get regulators and banks to ease the credit crunch, said Bill Hoagland, Republican staff director of the Senate Budget Committee.
The President is concerned that the continuing unavailability of credit for small businesses is "hurting the economy," though he is not officially giving up on his oftstated belief that the economy is fundamentally sound and is in recovery, Mr. Hoagland said.
But in a sign that the administration is acknowledging more concern privately than publicly about the economy's sluggishness, Mr. Hoagland said the administration is reassessing its relatively robust January forecast of economic growth following the recession. The administration must update the forecast so it can be presented in conjunction with the President's fiscal 1993 budget next year.
One assumption that clearly will have to be revised, Mr. Hoagland said, is the predicted strong recovery in the second half of this year, which so far has not materialized.
"They obviously will have to rethink the second half growth projections, at a minimum," he said, but are likely to argue that the economy simply is recovering more slowly than previously thought. Still, Mr. Hoagland characterized the reassessment so far as "just a fine-tuning exercise," adding, "It's too early to throw in the towel."
More in line with the administration's official pronouncements, the White House is preparing for a veto confrontation with Congress next week over the extended unemployment benefits bill and will continue to insist there is no need for such benefits because of the nascent recovery, he said.
The unemployment benefits bill passed both houses of Congress in the last week with enough votes to override a veto. But Mr. Hoagland said on Friday that a number of Republican senators are expected to change their votes the next time around to show loyalty to the President, and sustain his veto.