From Financial Meltdown to Global Depression?

NEW YORK – The rich world’s financial system is headed towards meltdown. Stock markets have been falling most days, money markets and credit markets have shut down as their interest-rate spreads skyrocket, and it is still too early to tell whether the raft of measures adopted by the United States and Europe will stem the bleeding on a sustained basis.

A generalized run on the banking system has been a source of fear for the first time in seven decades, while the shadow banking system – broker-dealers, non-bank mortgage lenders, structured investment vehicles and conduits, hedge funds, money market funds, and private equity firms – are at risk of a run on their short-term liabilities. 

On the real economic side, all the advanced economies – representing 55% of global GDP – entered a recession even before the massive financial shocks that started in late summer. So we now have recession, a severe financial crisis, and a severe banking crisis in the advanced economies.