Recession setting in

The government’s $4 trillion donation at the financial crisis pales compare to the wealth damaged in falling stock markets and conditions may get worse as the recession reality sets in.

Companies are ringing the alarm due to damage done to their profits while some are giving good signs that credit markets are beginning to gain traction and lending is slowly going back.

Japan’s Sony finds fewer buyers for its electronics. Peugeot Citroen, a French car manufacturer is planning massive production cuts due to fading of demands. Online retailer Amazon is predicting that holiday sales wont be strong this year.

The huge volume of companies reporting disappointing earnings is as bad as the bulk of industries and countries affected.

"We are now in the midst of a full-blown global financial crisis," said Citigroup analyst Robert Buckland. "Policy-makers have been unable to calm the storm, although the increasingly aggressive response offers some hope. The earnings downturn looks to have much further to go."

Since investment bank Lehman Brothers collapsed, stock markets have fallen so sharply that they have wiped out $12 trillion in wealth, according to Citigroup.

Spending has fallen sharply thus Consumer and business confidence has also plunged since then. This will weigh heavily in the Federal Reserve's decision on Wednesday on whether to cut short-term borrowing costs.
When the credit crisis first spiked in August 2007, the rate stood at 5.25 percent. Now investors are expecting a half-point reduction.

Ease on lending rates

There is some evidence that the Fed and its fellow central bankers are having some success in relieving credit market strains that drove up borrowing costs and effectively stopped many healthy borrowers from accessing cash.

Interbank lending rates have begun to ease and bank borrowings from the Fed slipped last week for the first time since Lehman's collapse.