What action was taken?
In an effort to restore financial stability and confidence, governments and central banks around the world took unprecedented action. Central banks in developed nations such as the US and within Europe repeatedly cut interest rates - now at record lows. Many governments announced major spending or economic stimulus packages, and also sought to stabilise asset prices including the price of property in the US housing market.
Efforts were concentrated in the US where problems had first emerged. Major action was also taken in the UK, Europe, the emerging nations of China and India, as well as Australia. At home, the Federal Government guaranteed deposits and wholesale borrowings in local financial institutions and APRA regulated Approved Deposit Taking Institutions. Two stimulus packages were announced: the first, in October 2008, was a $10.4 billion package focused on boosting consumer spending; the second, in February 2009, was a $42 billion 'Nation Building and Jobs Plan'.
Are these actions working?
Economic indicators suggest efforts to stabilise global credit markets have had a positive effect. Businesses and consumers now appear more optimistic that stability will return to the global economy, with confidence levels steadily improving since early 2009.
Yet at the time of publication, a sustained global recovery still looked some time away. Encouragingly, it appears that in Australia we have avoided a severe downturn, and since March this year the local sharemarket has regained some ground lost since late 2007.
The emerging nations of China and India, as well as Brazil, also appear to be in a relatively strong position. This is due to their fiscal strength, and continued growth. In contrast, the developed world - in particular the US - is likely to face significant long-term challenges due to the size of public debt resulting from spending packages. This debt could slow any move to a sustained global economic recovery.