by Ophelia Keith

Created on: January 14, 2009   Last Updated: January 26, 2009

As one US institution after another falters or fails it is easy to see the current economic downturn as a uniquely American problem. In an increasingly interconnected world, what happens in one corner of the globe often impacts events in another. When it happens to the world's largest economy, that impact is swift and severe.

Consider that the Asian stock market retreated on January 12 when US unemployment was announced at a shocking 7.2 percent, up drastically from November's rate of 6.8 percent. Burgeoning national deficits and shrinking personal incomes have decimated both public aid and private charity, affecting the poorest of the world's population. Vanishing credit lines are strangling businesses already hammered by lost revenue, causing a chain reaction of decreased orders to vendors, employment reduction and slowed payment of invoices. Companies dealing with international vendors set off a similar domino effect in the nations where these vendors reside and so on.

The election to the US presidency of Barack Obama signals a change in the American electorate's sentiments. The Republican theory of trickle-down economics is now suspect, "spreading the wealth" doesn't seem like a bad idea once the ramifications of pooling wealth among a narrow slice of the population becomes clear. While re-igniting the world's economic engine will be no mean feat, there are some encouraging signs coming out of the Obama camp. The President-elect's FDR-like plan to employ thousands at federally funded infrastructure jobs could reverse negative trends by stimulating the movement of cash through the system. Any stimulus plan that resembles the Bush administration's one-time tax rebate will be throwing good money after bad if the fundamental problems of the economy are not addressed. Regulatory changes will have to be made to restore public confidence in the financial sector and the Glass-Steagall Act, or portions of it, revived. Injections of cash into struggling banks, such as the $45 billion of federal capital recently poured into Citibank, will not avert disaster if lending, savings and investment institutions are allowed to remain intertwined without more stringent oversight.

The SarbanesOxley Act of 2002 was much-needed legislature introduced after the Arthur Andersen-Enron-Tyco debacles revealed the perils of little to no government scrutiny of corporate accounting practices. Like most legislation however, it was the fiscal equivalent of shutting the paddock gate long after the horse has bolted. The same is true of any new laws that might be put into effect to guard against a future banking meltdown but if the Obama administration can get cash flowing in the short term and restore consumer confidence in the long run, the US economy will come back as sound as ever and with a stronger foundation.

Once the US economy is heading back to stable ground, the global economy should follow suit. International banks will be able to extend credit more freely to businesses and individuals, exporter nations will enjoy a resurgence of orders from the US, and international stocks will rise in response to lowering US unemployment rates and rising economic data.

Learn more about this author, Ophelia Keith.
Click here to send this author comments or questions.