Euro Debt Loan, Housing Starts: Good News for US Economy

Over the last few days the economy has received some very positive economic news:

  1.  Housing starts, which have been the biggest drag on the US economy, are beginning to pick up. Newly released numbers indicate that things may be finally turning around. The new number (685,000) is an increase of 9% over last month (and  15% increase over last year)
  2.  The other good news this week for the US economy is that new claims for unemployment were down to 366,000; significantly below the 400,000 threshold economists have been hoping for. One month ago they averaged 405,000. This represents a 10% decrease in claims.
  3.  Consumers are also spending more and saving less, which is good for the economic recovery. Retail spending online is up by 15% over last year.
  4.  The economy just received good news regarding the European debt crisis. The European Central Bank decided to loan $641 billion to 523 banks, over the next three years. The central bank lending fund, technically called a Long Term Refinancing Operation, was 57% larger than most economists expected—good news. This will make money available to local banks throughout the euro zone and ease the threat of bankruptcy and default. The banks will use the money to buy government bonds.
  5. Why the euro zone crisis is important to us:
  •  The three largest banks in the US (Bank of America, J.P. Morgan, Citigroup) each have about $15 billion invested in the five countries that are most likely to face default (Greece, Italy, Ireland, Portugal, Spain)
  • If the banks default, it may threaten the financial stability of US banks and hurt our economic recovery.
  • The threat of default has forced US banks to keep on hand large balances of cash reserves, which means less money is available for lending to consumers and small businesses.
  • The latest move by the Euro Central bank reduces the fear of a sovereign default and therefore makes more money available to US borrowers.

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