"Our future prosperity depends on whether we can work with others to restore confidence and manage change and to stabilise the financial system," President Clinton declared on Friday as he announced a new fund to limit the turmoil.
So dire, widespread, and complete has been the collapse in confidence in financial markets worldwide that many bankers are now predicting a fall in London and New York share prices of 50 per cent from their peak in July. On Friday, the FT-SE 100 Index closed near its year low. The Dow rallied 2 per cent on optimism that, after six weeks of inaction following the collapse of Russia, policymakers are finally coming to grips with events.
"The markets ignored the quarter point cut in US interest rates on Tuesday," said Greg Smith, a market forecaster for Prudential-Bache Securities. "But the cut shows the policymakers know what's out there now. There will be more cuts."
Of even greater immediate danger than a further slide in stock markets is a looming credit crunch. A US banker in the City last week said British, continental European, American, and Japanese banks and brokers shared one thing in common - a wholesale dumping of all risks. A Japanese banker in the City said he was telling clients seeking to raise funds to "forget it".
The risk now is that the bad economic news of the past months will translate into a recession in the West, as corporate borrowers cannot obtain financing, and that this - along with depressed demand - triggers a vicious circle of job layoffs, more shocks to confidence, and even greater reluctance on the part of banks to lend.
The Clinton programme announced on Friday directly addresses the concerns of bankers and investors. It calls for emergency funding for the countries hardest hit by the global financial crisis. It also calls for acts of statesmanship from the segments of the world community - including the US Congress - blocking measures to restore stability, such as the replenishment of the IMF's seriously eroded reserves.
But it remains to be seen if the broad actions called for will translate into concrete policy actions that reassure the markets. Group of Seven finance ministers join tomorrow with their counterparts from 15 emerging market countries to discuss measures to prevent the worldwide economic crisis from deteriorating further.
The priority facing this meeting is Brazil, which has lost $15bn (pounds 8.8bn) of its $70bn in foreign reserves since July.
Brazil holds the first round of presidential elections today. President Fernando Enrique Cardoso is expected to return to office after the second round, two weeks from today. The worry is that by then it will be too late for Brazil to forestall some form of default on its $150bn in foreign debt.
If Brazil's troubles spread to Mexico and cause economic and social turmoil along its 1,000-mile border with the US, it could destabilise the US economy and so weaken the dollar, the world's reserve currency.
In response to such fears, Chancellor Gordon Brown and Treasury officials hinted on Friday that the Group of Seven will sanction temporary restrictions on capital flows in and out of Brazil.Reuse content