This could potentially undermine public self-confidence in the bank and economic climate. When self-confidence is lost, everyone desires to keep hard cash under their mattresses. This threatens the economic system. So, the policymakers argued that the banking and financial system should be preserved. Saving the banking and financial system does not mean that everything is OK.
In the first place, the bank and economic climate collapse because of the sharply deteriorating economic system. So the rescue deal only tries to avoid the financial collapse. With no additional investment, the financial system should continue to deteriorate at the same rate as before. Hence, the fear of a global economic recession.
Bear at heart that US and Europe are in big trouble due to a major structural change in the global economy – the rise of China. It is this incapability to contend with China that the US under Greenspan wanted to put liquidity into the economy in order to shore it up. Exactly, like Japan in 1985 – and Japan has since not recovered.
Do not be amazed if the US financial deterioration should last for quite a while, say 15 years. Whether the world will fall under a recession depends on China’s capability to restructure from an export-oriented plan to domestic intake. The old export-oriented companies may overseas go bust or go, while a fresh set of sectors producing for the domestic market has to arise.
And these do definitely not suggest robustness in the currency markets nor real estate. …