ANALYSIS - Shock bailout vote heightens U.S. recession spectre
By Glenn Somerville and David Lawder
WASHINGTON (Reuters) - The U.S. economy was in dangerous waters before a shock House of Representatives vote on Monday to reject a bailout for troubled financial firms and it now even closer to being on the rocks.
Credit markets have seized up, banks are failing in Europe or facing arranged marriages in the United States while frightened consumers clutch their wallets closely -- all warning signs that economic activity was near grinding to a halt.
Analysts said lawmakers' rejection of a taxpayer-financed bailout -- never popular but widely thought necessary -- heightens the risk that a deepening U.S. banking malaise will spread more rapidly abroad and worsen a developing slowdown.
"Today's vote not to pass the $700 billion (377 billion pound) package to aid the liquidity crisis has raised the probability of a global recession as capital flows seize in the entire system," said Chris Jarvis, senior analyst with Caprock Risk Management in New York, warning it may soon be felt by ordinary consumers.
In recent days, banks have been increasingly hoarding cash and may now be so reluctant to lend that longstanding relationships with businesses risk being interrupted to the extent that some could have difficulty meeting payrolls.
Gary Thayer, chief economist at Wachovia Securities in St. Louis, warned "it won't be long," and possibly only days, before the impact is felt on Americans' day-to-day affairs.
PINCH COMING SOON
"We're already seeing a weak economy and if we don't see the credit markets improve within the next week or two, we'll start to see some businesses having difficulty in getting credit," he said. "This could lead to increased layoffs within the next month." Continued...
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