It is impossible to be confident about the future development of market confidence. But the continuing mayhem in global equity markets and in most other systemically important financial markets, the fear and mistrust that have caused the banks to stop lending to each other and the growing sense of doom about the outlook for the real economy all suggest that without further radical policy measures we are unlikely to escape from the downward spiral sucking the world economy towards a re-run of the 1930s.

Lack of confidence in the viability of banks and other institutions with bank-like features, including high (embedded) leverage like AIG and other insurance companies is a key obstacle to a resumption of normal financial intermediation.

Gordon Brown is absolutely right in his proposal that the G7 offer state guarantees, on ‘commercial’ terms (really terms that provide the state with an adequate risk-adjusted return on the funds it commits) to restore life to interbank lending. Banks today don’t lend to each other without high-grade security at any but the shortest maturities. When banks don’t lend to each other, they don’t lend to the real economy – non-financial businesses and households. That is the road to economic disaster.

If French officialdom believes the interbank lending market in the eurozone to be in materially better shape than in the UK, it is detached from reality. In addition, the euro area member states, the rest of the EU member states and indeed the US are well behind the UK as regards putting in place the fiscal underpinnings for the survival of their banking sectors. The notion that the ECB and the rest of the Eurosystem can play the role that is played in the UK by the fiscal authority, is a dangerous delusion.

Today, the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Swedish Riksbank, the National Bank of Switzerland and the monetary authority of the United Arab Emirates all cut their official policy rates by 50 basis points. The People’s Bank of China cut its one-year benchmark lending and deposit rates by 27 basis points. I had been hoping for (and had called for) a coordinated rate cut, but had not expected anything of this scope. It is timely, necessary and most welcome. The fact that the Chinese monetary authority and a key GCC monetary authority participated is of great symbolic significance and marks the accelerating shift of global financial and economic clout to the Far East and the Middle East.  But the contribution of the rate cuts to ending the confidence crisis is dwarfed by the actions that have been taken or will soon be taken, by the fiscal authorities in the North Atlantic area.

It is time for Ministers of Finance, Chancellors of the Exchequer and Secretaries of the Treasury to act to recapitalise the tottering banking systems of the North Atlantic region.  Statements that “we shall do whatever it takes to safeguard the banking system of (fill in name of country)” don’t cut it any more.  The banks with border-crossing activities in the US, the UK and continental Europe are now all at risk of failing.  They are all cutting back drastically on their lending to the real economy.  Official dithering is exacting a growing price, to be paid by tax payers and the future unemployed.