Treasury Secretary Henry Paulson said Tuesday it’s going to take some time for the financial markets and the economy to improve.

Speaking during a press conference to outline the Treasury and Federal Reserve’s plan to finance the issuance of non-mortgage asset backed securities in order to back lending to consumers and small businesses, Paulson said “it will take time to work through the difficulties in our markets and our economy, and new challenges will continue to arise.”

According to Paulson millions of Americans can’t find affordable financing for their basic credit needs at the same time that credit card rates are climbing, making it more expensive for families to finance purchases. “This lack of affordable consumer credit undermines consumer spending and as a result weakens our economy,” said Paulson.

As part of the new facility for consumer asset backed securities the Treasury will provide $20 billion of credit protection to the Federal Reserve in connection with its $200 billion Term Asset Backed Securities Loan Facility. On Tuesday the Federal Reserve also announced it will purchase as much as $600 billion worth of mortgage-backed assets from fledgling companies in hopes of jump-starting lending by banks nationwide. The Fed plans to purchase mortgage obligations worth $100 billion from Fannie Mae (FNM) and Freddie Mac (FRE) as well as the Federal Home Loan Banks.

“By providing liquidity to issuers of consumer asset backed paper, the Federal Reserve facility will enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower cost consumer finance and small business loans,” said Paulson.  “The facility may be expanded over time and eligible asset classes may be expanded later to include other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes.”

According to Paulson the $200 billion is a “starting point” and can be expanded and increased. Paulson said he couldn’t provide a time line as to when consumers will see credit easing as a result.

“I wish that there was one action we can take and all this would end and the economy world turn around…but that’s not the world we live in,” said Paulson. “What we are doing is coming up with programs that deploy TARP assets effectively as possible.”

When asked if the Treasury will tap the remaining funds in the Troubled Asset Relief Program or TARP, Paulson said the Treasury doesn’t have a time line for drawing down the next trance. “Congress has set a process in place,” said Paulson. “When the time is right we will avail ourselves in the Congressional process.”

Paulson said the move to buy consumer asset backed securities will help families get affordable mortgage finance.

The actions on the part of the Treasury Department have changed over the past two months. On Monday the government announced a rescue of Citigroup (C ). Paulson defended the bailout of Citigroup, saying the government is dealing with a “historic situation” that happens once of twice in a hundred years. He said that where the financial markers were before the Treasury got access to the TARP funding is drastically different now. He said that helping Citigroup aids in stabilizing the financial system.

As for insurance companies, Paulson said the Treasury is working through the applications of insurance companies that are also bank holding companies but hasn’t made a decision on providing funding for the broader insurance industry.