The United States is mired in a “once-in-a century” financial crisis which is now more than likely to spark a recession, according to the former Federal Reserve chief Alan Greenspan. The ex-central banker said that the crisis still had a long way to go and would continue to effect home prices in the United States. The US. trade gap has hit a 16-month high, the job market is shrinking and exports, a rare item in the economy’s plus column lately, may slow.

The US trade deficit soared in July, the Commerce Department said, as oil imports hit an all-time high. While exports increased, economists expect slowing economies in Europe and Asia will reduce export growth later this year. The July gap between imports and exports rose 5.7 per cent to $62.2 billion, much worse than the $58.8 billion Wall Street economists expected. Oil prices rose to record levels of $147 in July, pushing America’s foreign oil bill to an all-time high of $51.4 billion.

Economists welcomed the continued strength in exports, which have been the primary driver of the US economy in a year when the country has been battered by a prolonged slump in housing, rising unemployment and a severe credit crunch. The big rise in oil prices offset another strong showing for US exports, which rose by 3.3 per cent to a record $168.1 billion.

The Labour Department has reported that new applications for unemployment benefits fell less than expected as the struggling economy continues to take a toll on workers. The Labour Department said the unemployment rate jumped to a five-year high of 6.1 per cent in August, as employers cut 84,000 jobs, the eighth straight month of cuts. The data released by the department indicated the layoffs are continuing. New jobless benefit claims dropped to a seasonally adjusted 445,000, down by 6,000 from the prior week but above analysts’ expectations of 440,000. The number of people continuing to draw jobless benefits increased to a five-year high of 3.53 million.

The job market could get worse. Nearly one-third of the country’s top executives expect to cut payrolls in the coming months, according to a survey released by the Business Roundtable, an association of large company CEOs. Many analysts expect rising unemployment to further crimp consumer spending and slow growth enough to cause the economy to contract in the fourth quarter and first quarter — the classic definition of a recession. The waning effects of the government’s $168 billion stimulus package are expected to exacerbate the problem.

This year’s federal deficit is predicted at $410 billion and another $407 billion 2009. The budget for 2009 however only includes $70 billion for war expenses in Iraq and Afghanistan, $119 billion less then this year. If the war would continue during 2009, spending and deficit would increase. Bush’s military budget for 2009 amounts to $588 billion, but only includes $70 billion for war costs in Iraq and Afghanistan. That is $119 billion less than this year. In order to keep a balanced budget there would have to be an almost immediate end to sectarian violence and terrorism in Iraq in the beginning of 2009.

UN Secretary-General Ban Ki-moon expressed deep concern that the US financial crisis will have a serious global impact, especially on rich donor nations that play key roles in fighting poverty. The financial crisis would affect global efforts to meet the UN goals, which include cutting poverty, ensuring primary school education for all children, and halting the HIV/AIDS pandemic, all by 2015. The secretary-general also pointed to a recent UN report which said rich donor nations have failed to deliver on promises to help the world’s poorest countries, saying they must increase aid by $18 billion a year to keep their pledge to provide $50 billion by 2010.

Meanwhile, the US Treasury Department announced a new programme aimed at helping the Federal Reserve manage its balance sheet in the wake of the various forms of liquidity the Fed has made available to market participants over the last several months.

New rules aimed against abusive naked short selling of stock in all publicly traded companies were issued by the US. The US current account deficit widened during the second quarter to $183.1 billion, partly because of a larger deficit on trade in goods with the rest of the world, the Commerce Department.

The Federal Reserve announced several steps to cope with the worst credit crisis in decades, including broadening the types of assets that investment banks can put up to get emergency loans from the Fed.

The action came as US and foreign commercial banks were hashing out a plan to inoculate the global financial system against the possible failure of Lehman Brothers. The steps, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets. According to the Fed Chairman, besides expanding the types of collateral that can be used, the Fed would also increase the frequency of some of the auctions being used to get loans to banks from every other week to a weekly basis.

The Treasury Secretary also supported the Fed’s moves and is hopeful that the actions taken should strengthen and enhance financial markets as these initiatives will be critical to facilitating liquid, smooth functioning markets and addressing potential concerns in the credit markets.

The Fed’s steps represented the latest in a series of actions the central bank has taken over the past year to try to protect the U.S. financial system from a credit crisis that erupted as a result of rising loses in sub-prime mortgage lending.

The central bank in August 2007 invited commercial banks to make use of its emergency loan programme if they found themselves short of cash. Then last December, it expanded the programme to auction off loans to cash-strapped banks, seeking to overcome a perceived stigma from banks getting direct assistance from the Fed. Last March, it implemented the biggest expansion in the emergency loan programme since the Great Depression by announcing that investment banks could obtain money from the Fed. The action came after the near-collapse of investment bank Bear Stearns, which was taken over with the help from a $29 billion Fed loan by JP Morgan Chase and Co.