The announcement that the US is to host a conference of 20 leading economic powers on 15 November, after the presidential election, shows once more the close interrelation between economic developments in the United States and the international situation.
The huge bank bailout packages that have been announced, amounting to over $2.5 trillion, or approaching 10 per cent of the GDP of the US and Europe, have temporarily succeeded in preventing the complete break down of the interbank lending market - that is, they have headed off the equivalent of a simultaneous heart attack and stroke. But they have done so only by diverting huge quantities of resources into the core of the financial system, and therefore by threatening to cut off the flow to other sections. By these means the patient has survived the first attack but will gangrene set in in areas where the blood supply is no longer operating properly? Will weaker companies, weaker countries, new areas of potential financial problems, go down - struck with shortage of the financial blood supply, that is inability to obtain funds, or able to obtain them only at interest rates, or with political conditions, that are unacceptable?
The hope is that gradually the whole economic circulatory system will gradually start operating again. But whether it will is not yet clear.
One absolutely certain problem that is coming, however, is the US government budget deficit. This was already going to be over half a trillion dollars next year even before the bail out packages. The figures now being discussed, after the bailouts and with a recession starting. are a trillion or more. How will this be funded? And at what interest rate? Will the US have to rely on its own domestic savers purchasing the necessary Treasury bonds - which implies one, higher, interest rate? Or will foreigners join in? That is crucial for the perspective for the US economy next year and the depth of the coming recession.
If, as seems likely, Barack Obama wins the presidential election this question of whether he can negotiate a new financial Yalta will have to be number one item on his economic agenda.