CURRENT CRISIS NO REPLAY OF 1929

The financial crisis now stalking the world is serious, but not as serious as that of 1929. In essence it is a deep crisis of confidence triggered by a proliferation of bad real estate loans now driving banks and other financial institutions into bankruptcy, writes Luiz Carlos Bresser-Pereira, an economist, professor emeritus at the Getulio Vargas Foundation, and ex-Finance Minister of Brazil. In this article, the author writes that given the prompt reaction of the governments of the affected countries, there is no motive for pessimism. The markets are sure to return to reason, the stock exchanges will make up a part of their recent losses, exchange rates will stabilise. Confidence is certain to return before long, though the crisis will leave scars in the US and damage all other countries, with a recession that could last a year or two. But it will be a very different recession from that of the 1930s, when Washington waited four years to act. Today, implementing Keynesian and an array of pragmatic instruments, not only Washington but also all governments involved are acting promptly and firmly.