This morning, Treasury Secretary Henry Paulson delivered an update on the state of the global financial system, the US economy and the implementation of the financial rescue package Congress approved just last month. While much of his prepared speech was an assessment of what has happened to until this point, he further offered the group's priorities for applying the remaining TARP bailout and highlighted the US government's key strategies going forward.

Wading through Paulson's assessment of the situation so far, the real meat of the official's statement came through his plans for ongoing priorities to help stabilize the markets and economy. In this capacity, his three strategies for the future were aligned to the top priorities he has set for the remaining capital in the TARP program going forward. His first concern was the overall stability of the financial market. To answer this most urgent issue, the Treasury Secretary said that he believed the purchasing of troubled asset-backed securities (ABS) could not be implemented quickly enough nor would it be broad enough to directly curb the plunge in investor sentiment. In its stead, he suggested building capital in financial institutions through preferred share purchases would more surely stabilize bank balance sheets and revive lending.

Another, relatively significant shift in their plans came through his suggestion that the TARP should be used to secure consumers' access to credit. To accomplish this, Paulson said it was imperative to support the market for securitizing credit outside of the banking system (which accounts for approximately 40 percent of US consumer credit, auto loans and other products). Aside from suggestions that they could encourage liquidity in ABS through a matching program, the Secretary provided few details on how this may be accomplished. Finally, fully acknowledging the necessity of providing liquidity to consumers through the ongoing bailout process, the last priority was aimed at reducing foreclosure risk. Highlighting the effort made so far, Paulson mentioned the success of loan modification through IndyMac whereby 3,500 participants in the program experienced a 23 percent or $380 reduction in their monthly mortgage payments. His hope that this would be a policy adopted by private institutions was the extent for what he gave for concrete policy going forward however.

Altogether, this update has stream-lined the forecast for policy efforts going forward, reflecting adjustments that can be attributed to much needed time for reflection and the response to policy efforts made so far. The increased focus on the consumers' role in the financial crisis is a step to fixing the long-term impact of the financial crisis and helping to stem the oncoming recession (rather than merely responding to panic sentiment in the investment arena). At the same time, the cumulative efforts laid out by Paulson today does not mean the worst of the credit seizure and economic slump will soon past. At the end of his statement, the Secretary said the problem is a global one; and the long-term outlook will depend on the US and other nations answering the imbalances of capital flows, interest rats and risk taking for conditions to truly turn around. This is a big order; and the market new it. After the statement hit the wires, the dollar and Japanese yen charged higher as traders sought safety. Paulson mentioned the upcoming G20 Leaders summit in Washington DC this weekend - a meeting that had already been on trades radars'. Whether or not risk aversion can finally turn will depend on whether or not these policy officials can loosen liquidity and boost investor sentiment in the short-term and offer realistic policy changes for the long-term. Considering the piecemeal effort made so far, the outlook for such sweeping changes is bleak.

John Kicklighter a Currency Strategist at FXCM.