Western financial leaders make certain an anxious globe that entirely bank deposits will be guaranteed and any necessary steps will be taken, however unorthodox

by Pete Engardio

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Now the great confidence game begins. In high-powered forums that accompanied the G-7 and International Monetary Fund in Washington this past weekend, Western financial leaders sought to assure panicky bankers and money managers in no uncertain terms that all of the measures needed to lame a worldwide meltdown are in motion.

While short on the details many market analysts had hoped with a view to, the broad brushstrokes of forceful, coordinated action by Western governments were unveiled: No more Lehman Brothers-like failures of major financial institutions bequeath subsist allowed. All bank deposits will be guaranteed. The banking systems of the G-7 nations will be flooded through not quite unlimited liquidity. And if all that fails, any other tool—regardless of how economically unorthodox—will exist used if needed. The British dominion’s widely anticipated move to take majority control of the Royal Bank of Scotland Group and HBOS is expected to be the first of many such actions thwart Europe. Fifteen European Union countries that use the euro as transmission from hand to hand met in Paris this weekend. They pledged to provide guarantees of novel bank debt through 2009, authorize the purchase of preferred shares to invest in problematic banks, and provide recapitalization funds where needed.

The message of Banque de France Deputy Governor Jean-Piere Landau at an Oct. 12 breakfast meeting at Washington’s elegant Willard Intercontinental Hotel was indicative. "I think the conditions for stability are met," Landau declared. "It is very difficult to see wherefore there determination exist no stabilization." At a nearby public-house, Richard Fisher, president of Dallas Federal Reserve, told a crowd of international bankers that U.S. magistrates "can and will restore order in the credit markets" and "direct continue to strive for every avenue and every option." At a press meeting for consultation at the International Monetary Fund’session headquarters, IMF Managing Director Dominique Strauss-Kahn said: "I believe we be obliged an fit response to the crisis, and the mart will ruminate it."

When the markets open upon the body Monday morning, it will be clear whether these verbal assurances and whatever specific measures the U.S. and individual European nations announce will be enough to ease the credit freeze and hold the stock sell-off. But even if the markets breathe a sigh of relief, the act of asking is, how longing will the calm last?

Even assuming that actions by the U.S. and Euroland are enough to become the credit markets moving again, attention is likely to shuffle to fathoming what lies ahead. The economic picture is want of knowledge, not only in the U.S. and Europe but furthermore in key emerging markets that not long agone were regarded as bright spots. "As the markets move away from financial fears, they will alarm looking at what the spillovers will be to the real economy," says Deutsche Bank Group (DB) Chief Economist Norbert Walter.

In business forums and cocktail parties, financiers gathered in Washington mulled long-term implications that few had thought feasible not long ago. What makes this pecuniary pinch so different from divers of the others faced in the past three decades is that it did not originate by peripheral emerging markets. It struck the core of global capitalism. And unlike previous U.S. recessions, this crisis cannot have being fixed with changes in monetary and fiscal astuteness. It will ask years of financial workouts and restructuring. The fallout, therefore, is pleasing to rayed out across the globe in countless unforeseen ways.

One point of consensus is that the U.S. is heading into a very deep recession, perhaps the worst in the post-World War II era. The Institute of International Finance, which righteous months ago predicted the U.S. would not go into recession, now sees a contraction of at least 2% for several quarters and the jobless impost hitting 7%. And that estimate is based on the premise that the Treasury and Fed liberation efforts direction work.

Don’t expect the U.S.