The Obama administration has signed into law a US$787 billion stimulus package. Of course, the financial sector and economic tsunami which manifested itself with the crash of Lehman Brothers has had serious consequences for not only the US economy but the world economic system.

Since last August there has been a serious credit crunch in the US resulting from these events, and as with the economic stress, the credit crunch is expected to spread to other economies. President Obama's stimulus package and the Federal government's manifest strategy to stand ready to prevent banks from failing should help to restore positive attitudes towards growth; if not growth itself.

Ease credit crunch

First, the credit crunch should be eased as the central bank (Federal Reserve) ought to be willing to lend to banks fully 'insured' by the central (Federal) government.

Furthermore, fiscal elements of the president's approach should have a positive impact on demand and, therefore, the prognosis for business profitability.

Possible prospects

Consequently, lending institutions should be more willing to lend to businesses and consumers, who, over the medium to longer term are expected to have employment and income as opposed to the current and short-term prospects which suggest under-employment, unemployment and insufficient incomes.

As far as Jamaica is concerned we have been adversely affected by these events even if with a lag. Our own credit crunch might be coming with a lag, but there is evidence that the process is underway. Already most banks have reduced the limits on unsecured loan facilities or have taken them off the table completely. In general, tighter restrictions are being imposed on loan applicants, and some banks have frozen some types of loans such as those on motor vehicles.

It is hoped that the US situation will improve in short order and, as with the crisis, spread rapidly to world markets. Hopefully, the Jamaican government's stimulus package and range of policy proposals, both from the central bank and the fiscal authorities (Golding administration) will be enough to stave off or unfreeze credit in our own economy.

I am, etc.,

DARRON THOMAS

darron.thomas@gmail.com

Dept of Economics

UWI, Mona

Kingston 7