GENEVA — As recession spreads around the world, the global production networks that arose with the globalization of the world economy have become sources of cutbacks and job losses. Postponing purchases of new winter coats in the United States means job losses in Poland or China. These losses then translate into reduced demand for American or German machine tools.
Unemployment and reduced sales then feed back into new losses in banks' loan portfolios, further weakening the battered financial sector. As a result, anxiety, hopelessness and anger are spreading, as what was a financial crisis becomes an economic and human crisis. Unchecked, it could become a security crisis.
Trying to rescue the financial sector without supporting a recovery in terms of businesses, jobs and family purchasing power will not work. What is needed is a large worldwide fiscal stimulus to counteract falling private demand.