Joseph Brusuelas, chief economist for Merk Investments of California, said investors have been watching three metrics to gauge the success of the congressional bailout: the strength of the Japanese yen against the dollar; the spread on two-year U.S. interest rate swaps; and the difference between the rate charged for dollar loans in London compared to the overnight index swap rate.
“All of those different metrics worsened today,” said Brusuelas, who explained that investors are fleeing from the U.S. stock market to Japanese banks, which are believed to have less exposure to toxic mortgage-backed assets.
Bush has urged investors to remain patient, cautioning them that it would “take a while” for Treasury to set up the rescue program.
His administration is expected to name Neel Kashkari, a former Goldman Sachs executive, to run the program, which has yet to be sketched out in detail.
Several economists told The Hill that Americans should not expect to see any substantial benefit from the program before Election Day.
“There’s a lot of uncertainty about whether this will work,” said Thomas Pugel, a professor of economics and global business at New York University. “I don’t expect a huge turnaround in the next month.
“Not good news for people running for reelection,” he added.
Doug Roberts, chief of investment strategy at ChannelCapitalResearch.com, said, “Everyone thought the bailout would be the silver bullet that would solve all of our problem. Now they realize the problem is global in nature and will take a lot longer to solve it.”
Market analysts said the rocky passage of the bailout through the Senate and House undermined the boost it was expected to give the markets.
Roberts said lawmakers should set aside partisan differences and press the Federal Reserve to act quickly to address the spread of instability to Europe.
Lawmakers could press for the Fed and other central banks to coordinate interest rate cuts, something hoped for by investors in the U.S. and abroad.
“Congress needs to get its act together and get into coordination with central bank and act in a coordinated manner to solve the problem,” said Roberts.
Conservative economists, however, said Congress would do the most good by staying on the sidelines, especially after many analysts blamed it for frightening the markets rather than calming them.
“If they want to really spook the markets, they should come back,” said J.D. Foster, a senior fellow specializing in fiscal policy at the Heritage Foundation. “There’s nothing the Congress can do to improve the functions of market.”
Barry Bosworth, a senior economist at the Brookings Institution, said the House defeat of the bailout last Monday may have contributed to panic in Europe.
Jared Allen contributed to this article.
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