September 30, 2008
In one fell swoop, the House of Representatives has applied a sledgehammer to the American economy. The staggering plunge in the value of publicly quoted stocks in the US last night – a $1.2 trillion fall – shows more clearly than anything else just how much it had been holding out for a financial bail-out.
Even so, the longer you stare at a screen of the Dow Jones or FTSE 100, the more abstract it seems. So this is what it means:
It means millions more Americans, and hundreds of thousands more Britons, will lose their jobs; it means the recession will be deeper and more protracted than previously feared; it means borrowing costs will increase on both sides of the Atlantic. Companies will cut back on investment. Pension funds will be depleted.
The Western world, in short, will become significantly less wealthy.
There is still time for US policymakers to rescue the deal, but not much. Financial markets are no longer just chaotic, but are close to complete collapse. A number of banks, already on the edge, will be pushed that bit closer to the precipice as a result.
As the past few weeks have shown, companies can go bust very, very quickly. When they collapse they are very difficult, if not impossible, to put back together again.