The Bush administration's earlier $700 billion rescue scheme also looked too little and too late when the world markets responded to its enactment by collapsing this week, knocking $2.5 trillion off world stock market values.

It has been clear for some time that the troubles of this globalized economy would require a global response. The International Monetary Fund floated the idea back in June, on the eve of the Group of Eight summit in Japan, and got nowhere. French President Nicolas Sarkozy raised it again last month to no avail.

Perhaps because he is an American and a Republican, World Bank President Robert Zoellick got a rather better reception when he raised the idea again this week in a speech to the Peterson Institute for International Economics.

"We need a core group of finance ministers," Zoellick said, suggesting that the existing G7 countries should be joined by China, India, Russia, Brazil, Saudi Arabia, Mexico and South Africa.

"Such a steering group would bring together over 70 percent of the world's GDP, 56 percent of the world's population, 62 percent of its energy production, the major carbon emitters, the principal development donors, large regional actors, and the primary players in global capital, commodity and exchange rate markets," Zoellick added.

"We need this mechanism so that countries are not left to fail," Zoellick went on. "We need it so that global problems are not just mopped up after the fact but anticipated. We need it to develop the habit of dialogue and the necessary relationships of trust before the crisis hits."

That all sounds sensible, but it hardly helps now that the crisis has hit and the financial system is sinking fast. Bear in mind that the U.S. Treasury and the Federal Reserve have between them in the last six months committed more than 50 percent of American GDP to various loans, bailouts, guarantees and various interventions -- without fixing the problem.

In their panic, the markets are no longer to be reassured by the various Band-Aids of the Bush administration. Another Band-Aid was applied Monday, when the Fed announced that yet another $900 billion was being made available in liquidity. The stock markets barely paused in their plunge, and the money markets did not unfreeze.

But Tuesday the Fed at last did something that seems to be making a difference, announcing it was setting up a special vehicle to buy commercial paper, the short-term loans floated by companies to cover operating expenses. This market had been drying up fast, and the Fed's move had the happy side effect of lowering overnight rates and also easing pressure on Treasury bonds.

The question is, how long can the Fed and the Treasury keep doing this? They won't run out of money, because they can always print the stuff. But at some point they will run out of credibility, because the markets will have to start demanding higher interest rates to allow for the inevitable inflation that will follow.

And yet the markets even reacted badly when Fed Chairman Ben Bernanke gave a very strong hint Tuesday that he was ready to cut interest rates. The New York Stock Exchange, having risen after the commercial-paper announcement, nose-dived and lost another 200 points in the final hour of trading, with bank stocks losing more than 20 percent of their value following a similar fall in financial stocks in London.

If the problem 10 years ago was what Fed Chairman Alan Greenspan called "irrational exuberance," today it looks more like irrational despair.

Maybe the markets could be reassured if all the G7 countries, whose finance ministers gather in Washington this weekend, could agree on some massive, multitrillion-dollar guarantee fund. But to be credible, such a rescue probably would need the public and unconditional support of China, India, Brazil and Saudi Arabia.

So Bush's suggestion that the G7 finance ministers' meeting could come up with a "well thought-out" response was too limited to be credible and too vague to be useful. And the fact that it came from the internationally unpopular Bush may doom the idea. That would be a tragedy.

The IMF statement was rather more helpful, stressing that "actions to stabilize the global financial system should be coordinated across countries and, in particular, across major financial centers. Without such coordination, the adjustment process is likely to be more painful and protracted, steps by individual institutions to defuse their own market pressures may spill over to other jurisdictions, and concerns about inequitable burden sharing may prevent necessary but costly measures being taken."

The problem right now is that different countries are tackling the problem piecemeal. The British government, for example, reacted to its own banking crisis this week by preparing to shovel around $100 billion into its major banks. This direct way to recapitalize the banks was the strategy that many U.S. economists wanted the U.S. Treasury to adopt with its $700 billion bailout. But if the British, European and U.S. authorities had acted in concert, they might have had more effect.

Finance is global and the financial crisis is moving around the planet at warp speed, but the national governments and central banks are still thinking locally. And the place to which people naturally look for leadership -- the White House -- has lost its credibility. Doubtless it can return, but maybe not until a new president is installed in January, and it is far from clear that the global economy can wait that long.

Community
Email This Article
Comment On This Article

Share This Article With Planet Earth

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Related Links
The Economy

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News