The U.S. Treasury defended its handling of the financial bailout on Tuesday as American auto and banking woes reverberated around the globe and the International Monetary Fund said it would need rapidly increasing amounts of extra funding to fight the downturn, according to Reuters.
Facing tough resistance from the White House and leading Congressional Republicans to a $25 billion auto industry rescue package, the chief executives of the "Big Three" U.S. carmakers warned the U.S. Senate Banking Committee of dire consequences absent a bailout plan.
The industry needs the government intervention to save the U.S. economy from "catastrophic collapse," General Motors Co Chairman Rick Wagoner said in prepared testimony.
Automakers have been hit hard by a collapse in consumer spending triggered by the U.S. housing crash and exacerbated by rising unemployment and months of soaring gasoline prices.
U.S. Treasury Secretary Henry Paulson had insisted the $700 billion bailout fund was not "a panacea for all our economic difficulties" as he locked horns with congressional Democrats demanding part of the money be used to stem home foreclosures.
Pressed about whether bailout funds should be tapped to help automakers, Paulson said any solution for car firms should help them retool to make more energy-efficient vehicles, and that was not what the fund was set up to do.
"The rescue package was not intended to be an economic stimulus or an economic recovery package. It was intended to shore up the foundation of our economy by stabilizing the financial system," he said at a hearing on the crisis.
Earlier, Ford Motor Co decided to sell two-thirds of its controlling interest in Japan`s Mazda Motor Corp.
The decision illustrated the alarm gripping the American industry and the impact of U.S. troubles on economies well beyond its frontiers.
Japan`s economy minister said recession in the world`s second-biggest economy could last longer than feared.
In Britain, already officially in recession, headline inflation dropped to 4.5 percent in October from 5.2 percent the previous month, heightening expectations of a substantial cut in Britain`s 3.0 percent interest rate next month.
U.S. producer prices declined by a record 2.8 percent in October as energy prices slumped, showing inflation pressures receding sharply, although a major measure of core inflation at the farm and factory gate rose more than forecast.
The economic crisis has spread steadily in recent weeks beyond major developed countries, with states from Ukraine to Iceland to Pakistan seeking help from the IMF.
"Next year will be a difficult year. We are in a genuine world crisis. Past crises were regional. This is the first time the crisis is global," IMF Managing Director Dominique Strauss-Kahn told a news conference on a visit to Africa.
"As a result those countries seeking IMF support are more numerous than usual," he said.
Russian President Dmitry Medvedev said the global economic crisis had expanded from the financial industry, and industries in need of state aid would get it.
"Every industry is affected in its own way. It is impossible to say that one among them is sitting pretty and will not get state money," he told reporters.
SOME GOOD NEWS
In a rare bit of positive corporate news, U.S. computer maker Hewlett-Packard Co said it expects its fiscal fourth-quarter earnings to beat Wall Street forecasts. It predicted a profit for the coming year that topped analysts` estimates.
HP`s comments offset worries about the economic slump to send U.S. stocks higher. All three major U.S. stock indexes closed up about 1 percent or more.
European shares had closed up on Wall Street`s gains and gains by oil heavyweights, after declines in Japan.
Oil prices were also down, settling at a 22-month low on concerns about global economic weakness.
While the focus shifted slightly to the U.S. auto industry, global banking woes persisted. Britain`s Barclays, canceled this year`s executive bonuses. U.S. investment bank Goldman Sachs and Swiss bank UBS have done the same.
Japan`s biggest bank, Mitsubishi UFJ Financial Group, said first-half profit dropped 64 percent and stuck to its recently lowered full-year forecast.
Australia`s biggest investment bank Macquarie Group said it was heading for its first fall in annual profit in 17 years.
HSBC added to the employment gloom. A day after Citigroup set plans to cut 52,000 jobs, HSBC said it would cut another 500 staff in Asia, mostly in Hong Kong, because of the weak economy and caution about next year.