Finance ministers from the elite G7 group of nations are meeting today in Washington, against the backdrop of an economic crisis that continues to expand. I would like to say that I've already read the 38-page booklet getting some buzz in the blogosphere that contains 13 essays by all-star economists with recommendations for how the G7 should address the global panic. But events are moving rather quickly. When the Dow falls 660 points at the start of trading, before rebounding almost all the way back, it is difficult to maintain one's focus. As I write these words the Dow is down a mere 150 points or so. But more important, credit markets haven't budged. It's going to be a long day.
Huge declines in Asian and European stock indexes overnight contributed to the fear and trembling that is currently paralyzing New York. International economic cooperation at the level of the G7 (U.S., Japan, Germany, U.K., France, Canada and Italy) has never been easy, but now's the time to step it up.
From the Wall Street Journal:
"The interdependence of the major global financial markets has been established beyond the slightest doubt," said H. Rodgin Cohen, chairman of the law firm Sullivan & Cromwell and a top adviser to Wall Street firms. "As a consequence, it is essential that the major countries act collectively and cooperatively."
In their introduction to "Rescuing Our Jobs and Savings: What G7/8 Leaders Can Do to Solve the Global Credit Crisis," economists Barry Eichengreen and Richard Baldwin declare:
We are in the throes of what is almost certainly the most serious economic and financial crisis of our lifetimes. The crisis is no longer a U.S. crisis, or even a U.S. and European crisis; it is a global crisis. It has spread from the financial sector to the real economy. It is not just investment portfolios and retirement accounts at risk, continued turmoil will soon start to destroy jobs.
There is a need for urgent action. The policy response needs to be decisive. It needs to be global.
Eichengreen and Baldwin outline a three-point action plan:
- A quick bank recapitalization with global coordination
- A guarantee of deposits and/or loans with global coordination
- Further, coordinated macroeconomic stimulus.
The Wall Street Journal reports that the U.S. is "weighing" the possibility of "guaranteeing billions of dollars in bank debt and temporarily insuring all U.S. bank deposits." Such moves would be, suggests the Journal, "the government's most extensive intervention yet in the financial system."
The G7 is expected to release a statement Friday at 6 p.m. EST. If ever there was a time for real global cooperation, it would appear to be now.