5 Oct 2011

US economy on brink of failure, Fed head warns

6:30 pm on 5 October 2011

The chairman of the United States' central bank, the Federal Reserve, has told a congressional hearing that the US economy is on the brink of failure.

The warning from Ben Bernanke came as world stock markets fell sharply again on growing fears of a fresh eurozone banking disaster.

Asia and then Europe posted substantial losses but US markets held up slightly better, helped by some recent better-than-expected data. The Dow Jones recovered from session lows to close up 1.5%.

Saying that an anaemic job market remained the biggest factor hurting confidence, Mr Bernanke warned Congress that budget-cutting could hit already feeble growth and delay job creation.

He said the Fed stood ready to ease monetary conditions further to help an economic recovery that he described as "close to faltering".

"It is clear that overall the recovery from the crisis has been much less robust than we had hoped," he said.

Bailout likely for Franco-Belgian bank

The Franco-Belgian bank Dexia, which specialises in providing financing to local authorities, could be the first major banking victim of the eurozone debt crisis crisis.

Shares in the bank Dexia lost a third of their value before recovering to close with a loss of about 20%, as it became clear a government bailout was in the works.

Responding to the turmoil, France and Belgium said they would guarantee the debts of the troubled cross-border bank that had to be saved in 2008 when the global financial crisis deepened with the collapse of Lehman Brothers

Data from the European Central Bank (ECB) shows eurozone banks deposited the biggest amount of overnight funds at the ECB so far this year - a clear indication that interbank lending has frozen.