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The crisis that the economies, the financial markets and the banking systems are going through, has experienced a qualitative downturn in September, by passing the limits of the puncturing of the real estate sector financial bubble and turning into an unprecedented global financial crisis. Therefore, any positive effect arising from falling crude oil prices and the stabilisation of the United States Dollar that we have seen for the past three months, have been fully offset, on the negative side, by the critical situation in the banking system. Lehman Brothers bankruptcy has lead to a situation of real uncertainty in global banking, thus forcing the economic authorities of almost every country to take measures in order to support the financial sector, such measures being unprecedented by their dimensions and their reach. At the same time, central banks, in a coordinated approach, have started to move in order to cut interest rates. Inflation has passed to a second level, since crude oil prices fell from $USA 150 a barrel by mid July to less than $USA 90 a barrel in the current days. The huge contraction of global economy that we are living now will involve a strong fall in prices, even to the limits of a global deflation threat, therefore sharply changing the scenario on which central banks have been operating so far. In a word, the economy and the financial markets are facing three problems. The first one is the total lack of cash in credit markets. This problem, that needs an urgent solution, is trying to be solved by plans that provide cash to financial markets, like the one approved by the USA Congress, or those approved by the British and Spanish governments. The second problem consists of bringing order into the process of going out of indebtedness by families and companies, as to prevent irreversible damages to the economy. This process is being approached by a co-ordinated reduction in interest rates. The third problem is the necessity of capitalisation by some banks, and the reshuffle of the banking sector monitored by financial authorities. Given this situation, that is supposed to be the very worst of all predictable scenarios since the beginning of the crisis in Summer 2007, it can only be expected that measures adopted by Governments and Central Banks will have positive effects and contribute to stabilise financial markets, in order to avoid major damages to the economy. Nowadays, Governments and Central Banks, have a huge manoeuvre capacity and, normally, measures being brought into force, some of them too late like the reduction in interest rates in the Eurozone, will have positive effects and finally will stabilise currently adrift financial markets, that is the first necessary step to be taken in the task of reactivating the economy. In this sense, everything shows that interest rates will continue going down very sharply, reaching levels even below the ones of the former economic cycle, and thus fostering investment and employment. Juan Carlos Ureta Executive President of RENTA 4
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