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Fed Moves to Thaw Credit Markets
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Economists also differ over the threats of inflation or deflation. Some fear inflation as a result of lower interest rates and a flood of money, much of it simply printed by the U.S. government, pushed into the financial system. That would have the effect of reducing the value of U.S. debts, harming countries like China but benefiting Americans.
Other economists say the world economy is on the brink of such a severe economic contraction that inflation should be far down the list of concerns. Investors and traders in commodities share that worry; yesterday, fears of global recession pushed crude oil prices down $6.07 to settle at $87.81 a barrel.
"We're facing the worst global downturn since the early 1980s, and you just don't have inflation in that environment," Truman said.
"The key thing is to restore confidence," said Liebert, the corporate treasurer. "Bernanke's been very proactive with the rescue plan, but investors have to feel that the worst is over. The headlines from Europe are unsettling the market now. A cut in interest rates right now are not going to help too much. The cost of capital is being inflated by the perception of risk."
In past financial crises in small countries, the IMF has often come to the rescue with a combination of capital and reassurance to investors and businesses. But the United States is too big for the IMF to bail out, and besides, a senior World Bank official said, the United States doesn't need more capital. Instead, the IMF will probably look for ways it can intervene in smaller industrial and developing economies to combat the effects of financial contagion.
"I think our role in this crisis is different from previous crises in that it started in the center of the financial system rather than the periphery," said Masood Ahmed, director of external relations at the IMF. He added, "in the end, this crisis is going to be sorted out by the policymakers of individual countries."
Staff writer Anthony Faiola contributed to this report.
