Following the lead of the US Federal Reserve, central banks around the world announced rate cuts designed to lift the global economy in the face of a recession. The Fed slashed rates to 1.5%, while the Bank of England cut its rates to 4.50%, and the European Central Bank cut rates by half a point to 3.75%. Swiss, Canadian, Chinese, and Swedish banks also announced rate cuts. The Bank of England also stated that inflation was likely to rise to 5.0% in the near future but would decline as soon as lower oil prices and the Immense UK bailout take effect in the real economy. The UK bailout also allows for the partial nationalization of troubled banks.

The cuts failed to calm investors in volatile markets and most world markets saw losses despite the rate cuts. The actions of American and European banks appear to be part of a global strategy that uses aggressive monetary policy and taxpayer recapitalization of ailing banks, generating cautious optimism among economic analysts. Said Jim O'Neill, chief global economist at Goldman Sachs, "The gravity of the times requires out-of-the box responses. Atop of all the other things we have seen this week, it gives me great confidence."

The rate cuts caused a temporary rally in European stock markets which quickly faded. Indexes were off by 5 percent to 6 percent in Germany, Britain and France, while in New York markets were trading in a 400-point range, swinging between positive and negative. Federal Reserve officials said that Wednesday's actions were the first time that the Fed had coordinated an interest rate reduction with other central banks although in the past the Fed has joined with other countries to intervene in currency markets to stabilize exchange rates. The European Central Banks has been reluctant to lower rates seeing the mortgage meltdown as an American problem.

Unfortunately the mortgage meltdown in the US quickly spread to Europe and Asia. Credit markets froze leaving banks unable to do routine financial transactions. Corporations found themselves without the ability to obtain short term loans necessary for day to day operations. To make matters worse the massive US bailout was unable to stem the decline in world stock markets. The main problem seems to be banks reluctant to lend at any rate and the hoarding of cash. This has affected the mechanisms central banks use to ease credit and stimulate economic activity.

Many private economists are saying that a long feared recession has already arrived. Sharply rising prices for commodities and energy are hitting already financially distressed consumers hard and the effects of the meltdown are being felt in the everyday economy. The only good news is the fact that the US dollar is holding steady in Forex markets and Forex traders are probably the only ones making money in this economic downturn.