WASHINGTON (Reuters) - With financial markets reeling from a weekend of stunning changes on Wall Street, Democrats in the House of Representatives pushed on Monday to aid the faltering economy with a new stimulus package.
Legislation to inject another $50 billion into the economy, mostly by helping finance local construction projects that would create new jobs, was likely to come to a vote this month, a senior House Democratic aide said.
“Jobs, jobs, jobs. That’s what it’s about,” said the aide, adding the bulk of the stimulus would focus on job creation.
But White House spokeswoman Dana Perino said she knew of no shift in President George W. Bush’s opposition to a second stimulus bill. “No, I don’t know of any change,” she told reporters, while also questioning whether construction spending would actually create jobs over the short-term.
If it were to advance, the $50 billion would add to a $168-billion economic stimulus enacted earlier this year, mostly in the form of tax rebate checks already issued.
The second stimulus program would also supplement other steps expected from the federal government in days ahead to boost the flagging economy and calm financial markets.
With unemployment rising to a five-year high of 6.1 percent, and with the bankruptcy filing of Lehman Brothers Holdings Inc., Democrats in Congress want another election-year stimulus — with or without the support of Bush, who gave his blessing to the first measure.
That first stimulus jolt contributed to preliminary estimates of solid second-quarter economic growth of 3.3 percent.
Shaken by Lehman’s downfall and the planned acquisition of rival Merrill Lynch by Bank of America, markets on Monday were jittery over fears of possible related losses at global insurer American International Group.
Stocks fell sharply on Monday, with the Dow Jones industrial average down some 3.6 percent in late afternoon trading, while short-term interest rates soared worldwide, reflecting anxiety among banks about lending to each other.
While details were still in the works, a second stimulus bill also would help low-income families pay winter heating bills and extend unemployment benefits for those exhausting existing aid. States, which face higher costs of providing health care for the poor, also would get more help from Washington, according to several congressional aides.
Without a further extension of aid, nearly 800,000 workers will exhaust their unemployment benefits by early October, according to the National Employment Law Project.
Democratic Sen. Carl Levin, whose home state of Michigan suffers the highest joblessness in the United States, told reporters that an economic stimulus plan he wants the Senate to pass is “in the ballpark” of $50 billion.
Michigan is a key state for Democratic presidential candidate Barack Obama and Republican opponent John McCain.
While Democrats and Republicans in Congress blamed each other for the economy’s problems, Obama and McCain appeared to agree that the Bush administration had fallen down on the job.
McCain, at a campaign stop in Orlando, Florida, said, “The American economy is in a crisis.” He added, “Those regulators have been asleep at the switch, and we’ve got to fix it.”
At a rally in Grand Junction, Colorado, Obama said, “This is a serious, serious situation ... Too many folks in Washington and on Wall Street weren’t minding the store.”
With the November elections drawing near, the White House is leaning heavily on the financial services industry to end the slow-motion crisis that has gripped the markets for months now, said Jaret Seiberg, policy analyst at Stanford Group Co.
“At this point, one should expect the Bush administration to push the financial industry to finish off its sick and wounded as quickly as possible,” Seiberg said.
The U.S. Securities and Exchange Commission plans to take action before the end of the week on abusive short selling, where investors try to profit from declines in a stock’s price, a source briefed on the matter said on Monday.
On October 1, legislation to address the steepest housing slump since the Great Depression is set to take effect, including a Federal Housing Administration program to get thousands of distressed borrowers into cheaper mortgages.
The $50 billion stimulus, if enacted, would add to huge federal budget deficits that the Congressional Budget Office last week predicted would hit $407 billion this year and rise to $438 billion next year.
Editing by Philip Barbara