The good news is that it can free fall ends

With the arrival of spring in the United States, the optimists see buds, early warning signs of recovery from the crisis. The world is very different from that of the spring of 2008, when the Bush administration claimed to see "the light at the end of the tunnel". Metaphors and the administration have changed, but not optimism, seems.

The good news is that it can free fall ends. Its speed is in all lower case. And the bottom may be affected, perhaps before the end of the year. This does not however mean that the world economy will be restored shortly. Touch the bottom is not a reason to abandon the energetic measures taken to stimulate the economy.

This recession is complex: it is an economic crisis combined with a financial crisis. Before its start, consumers overburdened with debts in the United States were the engine of global economic growth. This model is now out and it is not about to be replaced.

The shortage of funds worsened the situation. Faced with a too high borrowing rates and consumption in Bern, the firms have responded by reducing their inventories. Orders fell to well more quickly that the decline in GDP and the countries which were dependent on property investment and property of sustainable consumption (expenditure that could be pushed) have been particularly affected.

Probably, the sectors that have hit the bottom in 2008 and earlier this year will recover. But if economic fundamentals, in America, the real estate market continues its decline, unemployment is rising and hundreds of thousands of people arrived at their rights to unemployment benefits.

For banks, the results of the "stress tests" on their capitalization are not satisfactory in all cases. And instead seize the opportunity of a real recapitalisation, perhaps with the support of the Government, banks prefer adopt an attitude in the Japanese style: "It will come out."

"Zombie" banks these dead "betting on their resurrection", with the immortal words of an economist, Edward Kane. While they repeat the debacle of cash savings and loans American ("savings and loan") of the 1980s, banks use of wrong models of accounting. (They were for example allowed to retain non-performing assets in their balance sheets without belittling, bet on the fact that they would be profitable before reaching maturity.) Worse, they may borrow from cheap to the Federal Reserve, even without actual guarantees, while taking on risky positions markets.

Some banks have announced profits in the first quarter of 2009, most accounting sleight tricks and gains in the financial markets (i.e. speculating). But this is not what will allow the world to recover quickly. And if the bet is lost, the American taxpayer will have to deal with a still more saline note.

The US Government also bet that he is going to make: the actions of the Fed and the Government guarantees mean that banks have access to financing at low prices, while rates of credits that they remain high. Except a bad new surprisingly, it is even possible that banks can get away without passing through another crisis. Here a few years, banks will be recapitalized and the economy will return to normal. This is the ideal scenario.

But the experience led to believe that this approach is dangerous. Even if the banks were well, depreciation and loss of wealth arising out of the crisis means that in all probability the economy will be weak. And an economy without force is rather synonymous with banking losses as profits.

The United States are not only concerned with the problem. Other countries (such as the Spain) suffer from their own real estate crisis. The difficulties of the Eastern Europe also threaten Western Europe's banks, already undermined. In a globalised economy, the difficulties pass rapidly from one region to another.

In previous crises, as in Asia is ten years ago, resumed soon because the affected countries could use their exports to renew their prosperity. But we are a widespread recession. America and Europe can use their exports to bail out.

The financial system must be certainly reformed, but this will be even insufficient to ensure the economic recovery. The measures adopted in the United States to redress the financial system are expensive and are unfair because they reward those who created this economic mess. There is yet another solution, in accordance with the rules of the market economy: the exchange of debt against equity.

Recourse to a "debt for equity swaps" would restore the confidence of the banking system and may reinitiate the loans without burdening the taxpayer. Nothing very complicated or new. But it is clear that holders of fixed return bonds do not like this system; they prefer to receive gifts from the Government. But public money can have other uses, such as fund new stimulus measures.

Any recession has a purpose. It is now to know the duration and the nature of it. Instead of watching the bud of the spring, we should prepare ourselves for another harsh winter: it is high time to develop a plan B to restructure banks and use even a few doses of Keynesian medicine.