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U.S. Digs For More Market Rescue Tactics

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The Associated Press

Published: October 10, 2008

WASHINGTON - What's left in Uncle Sam's economic tool kit?

The commitment of $700 billion didn't impress markets here and around the world. Neither did fresh interest rate cuts. Stocks plunged again Thursday.

The government still has some unused options - like buying up foreclosed properties and making direct loans to homeowners - that might ease the credit and housing crises and brighten the economic outlook.

But the options are dwindling and generally involve partly taking over private companies, an idea that's anathema to economic conservatives and others in the United States.

Even as policymakers counsel patience in waiting for the medicine already prescribed to fully kick in, they are searching hard for other approaches.

"So long as financial conditions warrant, we will continue to look for ways to reduce funding pressures in key markets," Federal Reserve Chairman Ben Bernanke said.

The Fed's primary tools are lowering interest rates and flooding the system with money. It's already done plenty of both.

It could further lower interest rates - and probably will if the downturn continues. But after this week's half-percentage-point cut, coordinated with other nations' central banks, there isn't a whole lot lower for the United States to go.

Since September 2007, the Federal Reserve has pushed its benchmark short-term rate down to 1.5 percent from 5.25 percent.

The Fed could inject more money. But it has already flooded the financial system with hundreds of billions of dollars.

And bold action by the central bank can have unintended consequences, signaling to investors that things may be worse than they thought, contributing to the downward spiral in markets.

TAX CHEATS COST U.S. $345 BILLION

Getting people to pay the taxes they owe could be one significant way of coping with dizzying increases in the federal deficit and the potential $700 billion price tag for the financial rescue plan, tax experts said Thursday.

In 2001, the last year the Internal Revenue Service estimated the tax gap - the difference between what taxpayers owe and what they pay - the figure stood at $345 billion. The overall compliance rate for paying taxes was about 86 percent.

"We believe $345 billion is a low-ball estimate," said J. Russell George, Treasury inspector general for Tax Administration. By comparison, the federal deficit was $438 billion.

The Associated Press

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