'US to weather subprime crisis'

"US economic fundamentals are healthy; unemployment is low, wages are rising and core inflation is contained," Paulson said in remarks prepared for delivery to the House of Representatives's Financial Services Committee.

"Although the recent re-appraisal of risk, coupled with weakness in the housing sector, may well result in a penalty, the fundamentals point to continued US economic growth."

Paulson has said previously that the August credit crunch will act as a penalty on growth, but that the US is not headed toward recession.

"The global economy also remains strong, with annual growth at around 5% and with many emerging market economies growing even more rapidly than the global average," he said.

"The advanced economies also continue to perform well, with unemployment down sharply in Europe, helping to make growth of the last several years the strongest since the early 1970s."

Problems in mortgage market downplayed

Paulson added that unlike previous market downturns, turbulence in the markets over the last few weeks was not caused by problems in the "real economy," and instead reflected "excesses in the credit markets."

He also downplayed problems in the subprime mortgage market, saying that US home ownership has increased over the last decade and that home ownership in general is not threatened.

"Even in the current environment, the vast majority of new homeowners will not have difficulty keeping their homes," he said.

The Treasury chief also reiterated that borrowers struggling to keep up with their mortgage payments should contact their lenders and try to reschedule their payments.

The Bush administration last month encouraged lenders to work out new schedules for some borrowers, and Paulson asked members of Congress to deliver this message to their constituents.

He also warned that while many subprime borrowers are falling behind, "some prime borrowers with solid credit histories are also struggling."

- AFP