Market meltdown could have been avoided: MLC

Speedy policy response the key

By Wouter Klijn
Wed 03 Dec 2008

The global financial markets meltdown could have been avoided, according to MLC.

It may have been possible to avoid the worldwide collapse of the financial markets if US policy makers had reacted more promptly, MLC capital markets research head Susan Gosling said.

"Had Lehman [Brothers] not been allowed to fail and had the policy measures now in place been taken six months earlier, the meltdown in markets would probably not have occurred," Gosling said in an investment briefing yesterday.

Although she recognises the Federal Reserve and the US Treasury have now put in place the most radical measures since the Great Depression, she has doubts it is enough to avoid a prolonged economic downturn.

"We should also admit that we are now likely in for the deepest and most protracted recession in at least 25 years," she said.

The main danger the global economy faces is that of deflation, Gosling said.

But she is optimistic it will not go that far, as the Federal Reserve has proven willing to take drastic measures.

"The Federal Reserve ... is ready to provide all the liquidity the economy requires. This will not just involve cutting interest rates, but a range of unconventional measures to get credit in the hands of those that need it."

On Monday evening, the National Bureau of Economic Research said the US has been in a recession since December 2007.

The bureau is the only body that can officially declare a recession in the US.

In contrast to the popular definition of recession as two consecutive quarters of economic contraction, the bureau uses a complex mix of economic indicators including employment, industrial production, income and business sales.

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