Leading article: The rescue mission appears to be failing

It was not supposed to pan out this way. When George Bush announced a $145bn (£75bn) rescue package of tax breaks and spending measures at the end of last week, it was supposed to inject some much-needed confidence into the world's largest economy. American investors and consumers were supposed to take heart from the announcement and the rest of the world (heavily dependent on the US as an export market) was supposed to follow.

The reality could not have been more different. Instead of rising on the back of the plan, global stock markets tumbled yesterday. Exchanges in China, Japan, India, South Korea, Singapore, Taiwan, Australia and the Philippines all fell. Meanwhile, European exchanges registered some of their biggest single-day losses of recent years. The US markets were most likely spared their share of the carnage only because they were suspended for a public holiday. Their reaction last Friday after the President's announcement hardly suggested they are more enthusiastic than their Asian or European counterparts.

Some investors are complaining that the Washington package is too little, too late and that a US recession cannot now be averted. Others are still smarting from the colossal debt writedowns by Wall Street banks and are afraid there is still more bad news to come from these engines of the global money markets. Either way, the markets have not reacted in the manner in which the architects of Mr Bush's economic rescue plan intended.

We should be careful not to read too much into one day of trading. It may be that shares bounce back again when the US Federal Reserve cuts interest rates later this month, as most expect it to do. But it does seem safe to draw some wider conclusions from recent economic developments. The international economy (with the notable exceptions of India and China) was always likely to enter a period of slower growth in 2008. But the credit crunch (and the associated problems, such as the debacle over Northern Rock in Britain) have combined with the general slowdown to deal a vicious blow to consumer confidence. As a result, the risk of this downturn being prolonged and deeper is considerably greater. It is this fear that explains the volatility of global stock markets in recent weeks and months.

The roots of this crisis are plain. After the turn of the Millennium, credit was too cheap for too long. This created bubbles in asset markets, particularly housing. Now that bubble has burst, the public is cutting back on spending. The great question now is whether interest rate cuts by the central banks and government intervention can make our economic landing softer, or whether the situation is already out of their hands.