It seems that the World’s financial markets are entirely dependent on the US and, in particular, the Federal Reserve Bank to provide any stability in times of turmoil.  On Monday stock markets around the world suffered large losses, some more than 5% as worries about the possibility of a recession in the US came to a head.  Panic fed panic amongst investors throughout the day leaving the wider public to digest lurid headlines about financial meltdown.  Monday, as luck would have it, was a public holiday in the US so no trading took place but forward contracts indicated a fall in excess of 5% was likely on Tuesday with the probability that this would trigger further falls elsewhere.

It is possible to argue for creative destruction but market turmoil does no one much good in the long run and can impact on the wider economy, meaning real people can lose their livelihood.  Globalisation may mean that the poorest people in the developing world may suffer the most.  This means positive action to avert the worst of a crisis is to be welcomed and the world was found wanting, consigned to being mere bystanders. 

The Fed, however, sees things differently and cut rates aggressively before markets opened in New York on Tuesday.  This did not prevent stocks falling but it did cushion them somewhat.  London then led the Far East in mounting a recovery of sorts.  It is clear that the current instability has some way to go yet but it may be possible to mitigate against the worst of its effects.

Of course, it is possible to lay much of the blame for these problems at the feet of the Fed but it is reassuring to see that they are not simply standing back and observing events as they unfold.