The ongoing turmoil in the world's stock markets (London fell by over 5% yesterday, and initially fell by 3% today) has prompted the Western central banks (US, UK and ECB) to finally wake up to the fact that the measures that they have taken so far have been too little, too late.
Fear, as opposed to greed and euphoria, is currently driving the markets. This fear has been brought about by the credit crunch, which in turn was brought about the semi criminal activity of US banks selling unaffordable mortgages to those with no hope of repaying them, then contaminating good quality debt by bundling these toxic mortgages with the debt and selling it on to other banks.
Chickens have come well and truly home to roost, and the banks are getting hit where they deserve namely in their profits. Unfortunately, the fallout hits the rest of us as credit lines are withdrawn and money/confidence dries up.
In reality, as FDR once said:
"We have nothing to fear but fear itself".
As the commercial banks themselves have shown zero leadership and courage during this time, it falls to the fiscal authorities of the US, UK and ECB to intervene and stop the panic.
Bush tried last week with a massive tax cut. Unfortunately, as with much that he has done over the last 7 years, this was a failure. Tax cuts, that are only likely to benefit the wealthy, are not sufficient to drive the economy out of the quagmire that it has found itself in.
The world's markets issued a unanimous two fingers to Bush's "solution", and went into freefall.
The central banks now have no choice but to co-ordinate emergency interest rate cuts worldwide. The market, anticipating such cuts, has risen briefly on the news in London.
It is now up to the central banks to deliver on this.