The world's central banks and governments appear to be running out of ammo in the face of a financial crisis that has been intensifying by the day and by the hour.
Even the unprecedented global interest-rate cut of half a percentage point yesterday had only the most limited effect on markets, while the IMF called the credit crisis "the most dangerous shock in mature financial markets since the 1930s" and warned of a recession in the UK and elsewhere next year.
The government action was, as one analyst summed it up, "like throwing a pistol at the problem once you've emptied the chamber".
The longest day in the global economy started at first light in Downing Street as Gordon Brown and the Chancellor, Alistair Darling, went public to announce up to £500bn of new capital to prop up Britain's ailing banks. Within an hour of the opening of trading, the FTSE 100 index had fallen by 7 per cent,
Then, at lunchtime, news broke that the Federal Reserve, with the Bank of England, the European Central Bank, and the central banks of China, Canada, Sweden and Switzerland had cut their interest rates by a half a percentage point. In Britain, that meant a cut in the base rate from 5 to 4.5 per cent – a day sooner than expected; and the first time such an emergency move has taken place since the September 11 attacks in 2001.
As a result, the US Dow Jones and other indices did rally. But not for long.
Trading soon returned to its characteristically febrile, volatile state. Fragile confidence alternated with paroxysms of fear, the optimists slightly prevailing as the trading day drew on.
Even so, the Dow stands some 33 per cent below its peak last year. Americans have lost some $2 trillion (£1.15 trillion) from the value of their retirement funds – "disappearing faster than you can count" in the words of the presidential candidate Barack Obama. He echoed the words of Ronald Reagan's election campaigns, when he asked the voters to ask themselves if they were better off than they were four years ago: "The rate things are going you should ask whether you're better off than you were four weeks ago."
The Bank of England's move and the Treasury's £500bn package to help banks and frozen money markets return to normal also failed to reassure in any sustained sense. The FTSE 100 index finished the day extending the huge losses already witnessed this week and this year; down another 5.8 per cent, completing the global round of losses that saw the Tokyo index down by 9.4 per cent to a five-year low. Trading in Indonesia and Russia was so chaotic the exchanges were suspended. France's Cac 40 index ended 6.3 per cent lower and Germany's Dax lost 5.9 per cent.
In London, traders and investors were encouraged by the sheer scale of the Government's package – £500bn, of which some £400bn can be counted as "new money", but still fretted that it would not be enough. The Prime Minister told a Downing Street news conference: "Extraordinary times call for the bold and far-reaching solutions that the Treasury has announced."
Mr Brown said the recovery plan would be funded through increased borrowing but added: "All these are investments being made by the Government which will earn a proper return for the taxpayer ... This support is on commercial terms. We expect to be rewarded for the support we provide."
Speculation was mounting in Washington last night that Mr Brown and other heads of government would join finance ministers for their already scheduled G7 meeting at the IMF in Washington tomorrow for an impromptu global economic summit.
Some of the most beleaguered British banks reacted well to the news that up to £50bn will be available to them in the form of government loans and purchases of shares, the price and terms subject to negotiation between the Treasury and the institution concerned. Halifax Bank of Scotland, the UK's largest home lender and the subject of wave after wave of unprecedented pressure, ended up 24.5 per cent, and Royal Bank of Scotland was 0.8 per cent higher.
But shares in Lloyds TSB, due to buy HBOS, fell 7 per cent and Barclays was down 2.4 per cent – all this despite a further £100bn being available in short-term loans from the Bank of England's Special Liquidity Scheme, on top of the existing outlay of £100bn and an extra £250bn in loan guarantees to encourage banks to lend to each other. Banks will also be made to subscribe to a Financial Services Authority agreement on executive pay.
Yesterday's unparalleled peace-time extension of state ownership and control of the banks and the large interest-rate cut was given only a nervous welcome. Researchers at Capital Economics said: "The provision of massive amounts of liquidity and enhanced depositor protection are all very well, but they do not get to the root of the problem. We are dealing with a crisis of solvency that is not going to disappear until banks are adequately recapitalised.
The UK Government has finally got the message, albeit late in the day. But this is not a domestic problem. It is a global problem. And until the financial sector in the world's largest economy is recapitalised, there will be negative spill-over effects in equity markets around the world."
So the pressure is now growing on the US Treasury to take more equity stakes or make more loans to the large American banks and even other, non-bank corporations. Yet even that may not be enough to prevent recession and further financial meltdown. For yesterday was a day when the world woke up to the historic nature of the times, and the realisation that the downturn will almost certainly now turn into recession and may even turn into a slump of a kind not seen since the Great Depression.
The real fear is that no bank rescue plan or internationally co-ordinated interest-rate cut or programme of tax reductions and public spending can do much now to stave off the inevitable unemployment and company failures as the credit crunch spreads from the financial and property sectors. The IMF's latest World Economic Outlook said "the major advanced economies are already in or close to recession" with "a cascading series of bankruptcies, forced mergers and public interventions" continuing to batter the West's banks.
Perhaps the only bright news is the belief that inflation will soon peak and then decline rapidly. Few disagreed with yesterday's Bank of England statement that: "Inflation is likely to rise further, to above 5 per cent in the next month or two. But inflation should then drop back, as the contribution from retail energy prices wanes and the margin of spare capacity in the economy increases."
On the back of such an upbeat assessment, many City economists see interest rates falling to as low as 2.5 per cent next year, their lowest since 1951. For those lucky enough to be in secure, well-paid work and with good credit ratings, the credit crunch may not hurt too much; for everyone else, the pain will be intense.
The rescue plan at a glance
* Gordon Brown unveils a £500bn package of measures aimed at rescuing the banking system.
* The Bank of England cuts interest rates, from 5 to 4.5 per cent.
* The Government confirms that all UK savers with accounts in the closed Icelandic internet bank Icesave will get all their money back.
* The IMF predicts the UK economy will contract by 0.1 per cent next year. Unemployment will rise to 6 per cent.
* European stock markets close down as investors remain unconvinced that the co-ordinated rate cuts and bank rescues will solve the financial crisis.