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We Are The (economically Depressed) World

This morning's Financial Times headline reads "Central banks launch rate cut." Finally! Not to inflate my own perspicacity, but I've been saying for weeks that what the financial crisis calls for is first and foremost a coordinated international response, preferably one led by the United States. Even if it just meant photo ops, summits, and verbal commitments, the signal that the largest economies are working together is vital to injecting confidence into global markets. Without it, since the Paulson plan passed, we've simply seen investors shift their anxieties to Europe.

Now the Fed, the ECB, the Bank of England, and the Canadian, Swiss, Swedish, and UAE central banks have cut rates by half a percentage point, and the People's Bank of China cut rates by 0.27 percentage points. Even the Bank of Japan, which didn't cut rates, expressed strong support for the move.

This is far from the solution to the crisis, though it should help calm the waters. The next move is to build on this unity by putting together a summit of as many finance ministers as possible, along with high-ranking members of the IMF and World Bank. And as luck would have it, the annual IMF and World Bank summits are scheduled for October 13 in Washington. In The Washington Post this morning, C. Fred Bergsten and Arvind Subramanian outline a host of steps the gathered bigwigs should take, including coordinated deposit guarantees and bank recapitalizations. (Martin Wolf at the Financial Times also has a long piece on the need for coordinated recapitalization this morning.) The new steps should also include a commitment to eschew currency controls, protectionism, and other desperate measures that might help a single economy in the short-term while hurting everyone else. Doing so would go a long way toward recognizing that, in a globalized world, we're all in this together.