World faces hard times as economic depression looms
Written by Jenny Luesby
October 27, 2008

Market screens flashing rows of red prices falling too fast for the naked eye is the stuff of investor nightmares.

In recent weeks it has been a scene replicated worldwide, as the globe has seen much of its wealth annulled in sell-off followed by sell-off.

Yet the market crash that has rattled so many shareholders, and devastated the western world’s pensions and savings, is only the tip of an iceberg.

Many now acknowledge this as the likely beginning of a world economic depression, possibly more severe than the depression of the 1930s.

The urgency and need to head off soaring unemployment and plummeting output has spurred world leaders to seek a world conference similar to Bretton Woods, which created the world’s current financial system, including the IMF, World Bank and Central Bank regulator, the Bank of International Settlements.

As blame shifts and hardens over the flaws in the financial system that brought the world to a financial melt-down, a reshaping of world financial regulation and support is undoubtedly crucial.

But a global rebuild on how much risk financial institutions are allowed to take, and how much support the world can offer those who stumble, will not address the pay-back for the mistakes made to date.

The bigger and more immediate challenge for world policy makers, as statistics roll in confirming hundreds of thousands of redundancies, stockpiling house repossessions, and a generation of employees who can no longer afford to retire, is how to head off a vicious downwards economic spiral.

Economic policy makers need to find a way that is not too devastating of calling a halt to consumer debt and living without the “virtual” wealth represented by previously overvalued shares, houses and other assets.

In reality, there is only one possible path to any kind of soft landing. Yet it remains far from delivery.

Just as countries and companies are brought back from the edge by rescheduling, western consumers have no other path.

Yet a nervous and threatened banking system has shifted gear into ruthless inflexibility in tolerating late payments and adjusting for consumers’ financial plight.

Source: http://www.bdafrica.com