Ever wondered why we are so worried about falling prices? And how worrying about them can become part of the problem?

Can a simple sofa lead to bigger problems?

Let me offer my own, real experience: I was going to buy a new sofa this month. I have found the one I like in the color I want

I suddenly realized: Hey, prices are falling. I can make do with my old one until the replacement becomes cheaper, or I will buy it in the January sales, when I might get a bargain.

So this month I haven’t bought the sofa. The shop didn’t get the sale. The factory didn’t get the order.

The same may happen next month, and the month after. Certainly I want a new sofa, but I don’t want to find the same chair cheaper in a month or two’s time.

Of course, by this time the economy will have worsened and I may be more concerned about saving for even worse times ahead — at this rate, the dratted sofa may not get bought until next summer.

Multiply my decision by everyone else and you see how the economic crises — coupled with falling prices — is disastrous.

Now tell me, what changes in shopping or economc decisions have YOU made that, if multiplied, will have a major effect? What purchases are you putting off? What vacations are you not taking, and what home improvements have you delayed?

Let me know, so we can truly see the size and scale of this problem.

WASHINGTON D.C. –- It was always going to be tough meeting the expectations at the G20 on Saturday. Talk of Bretton Woods II before the meeting inevitably raised hopes that would be near impossible to fulfil.

The fact that 20 nations, representing 90 percent of the global economy were present, merely gave the cynics cause to say nothing could get done — even President Bush admitted as much in his closing statement. Everyone expected an anodyne declaration giving something to everyone; thus nothing to anyone.

But the 10-page declaration proved us all wrong. It is considered, detailed and, yes, it sets out short and medium term goals for the G20.

Let’s remember the salient points: fiscal and monetary stimulus from those nations who can; immediate reform of accounting rules to conform to a global standard; new regulations for derivative markets and better early warning of crises; reform of the IMF and World Bank adding weight for the developing world; and a college of supervisors for cross-border investment companies.

These are not just platitudes. They mean business. Why? Because from what I can see the world leaders are angry and frustrated. Despite the cynics, most leaders go into politics to do some good. They don’t want to spend billions of dollars bailing out banks which should be building hospitals, roads and making life better for the electorate. They are furious that they’re stuck with the worst financial crisis in decades and they’re going to wreak revenge on those behind it.

However, there is an overriding hypocrisy that I found too much to take.

In defining the causes the declaration says “policy makers, regulators and supervisors in some advanced countries did not adequately appreciate and address the risks.”

Policy makers? Some advanced countries?

Surely not George Bush, who has been president for eight years? Or Gordon Brown who was Britain’s finance minister for over a decade and is now prime minister? Even Nicolas Sarkozy was France’s finance minister in 2005! The list of the complicit runs much deeper once you take into account officials in finance ministries and central banks who are still in office.

This is a breathtaking case of “someone was to blame” for the crash, conveniently forgetting they were the people either at the wheel or reading the map.

All I wanted to hear was one word: just one.

Sorry.

My Question: Did the G20 actually make a difference?

Or alternatively: Have the guilty politicians got away with the biggest financial swindle of our time? Watch The Economist’s Philip Coggan answer your questions

LONDON, England – The following is best sung to the tune of “Teddy Bears’ Picnic”…

If you go down to Wall Street today you’re sure of a big surprise

If you go down to the City today you’d better go in disguise

For this was the week

When everything fell

From stocks and bonds and everything else

For this was the week those terrible bears had their picnic

(Please feel free to add your own verses…)

Darling did the age-old shriek of “something must be done” but, in a unique departure for politician, he accepted that he is part of the group that has to do something about it.

Of course he will be attending this weekend’s G7 meeting in a strong position, having announced a £500 billion package that included part nationalizing Britain’s banks, guaranteeing interbank lending and injecting more liquidity into the system.

His bailout has been well received by the financial world and experts alike. In the naughty classroom of finance ministers he can turn round and say: “My hands are clean.”

Darling even admitted that he has been saying he would do “whatever needs to be done.” Even he now realizes its time to stop the talking and do something.

But this shriek of “something must be done” is a bit disingenuous. It is 12 months since the credit markets first seized up, and we are only now getting macro economic policy responses on a co-ordinated scale.

Better late than never — but let’s hope it’s not too late.

LONDON, England — It pains me to remind Todd Benjamin, but last year when the credit markets first seized in August, he was AGAINST any immediate cuts in interest rates.  He was AGAINST any co-ordinated response.  And he was AGAINST anything that smacked of recognizing the fact that urgent action needed to be taken then! He didn’t believe in using monetary policy to bail out the market.

I am not saying a cut would have done the deed, but I do believe, as I said then, that an element of urgency was required.

Todd?

LONDON, England — It is not hard to see why the markets have fallen so sharply today.  They believe no-one is at the helm. They believe that the policy responses we have seen so far are too little.

And in this scenario investors want out.

If you doubt what I say, ask youself. What are you doing in your investment decisions? Have you sold or gone into cash? I know we are all waiting to get back into the market, to get some stocks cheap, but is this the time?

The problem is that if you thought about buying last week, when the shares were down, you would have got burned — they fell further. So why do it this week when they might fall further and you can buy them even cheaper next week?

It is the oldest asset falling problems in the world. No-one will buy until they believe the shares have actually hit bottom or are at least bouncing around that area. The so called bottom fishers have not yet arrived.

LONDON, England — What do you expect finance ministers meeting in Washington to say?  I have had some thoughts (below), and I want to read yours:

We, Finance Ministers and Central Bank Governors, met today to evaluate the global economic outlook (and were pretty horrified by how the markets have stuck two fingers up at our responses so far …)

We have committed ourselves to ensuring the stability of the world financial system (but frankly, we don’t know what to do next … Hank’s idea didn’t really work … Alistair’s plan in London was interesting and is getting a lot of credit … as for poor Trichet, not sure what he is up to …)

We believe that our economies are fundamentally sound (hey guys, we have to say this, even though so many of us are heading into deep recession … )

And that we will co-ordinate activity to ensure the return to steady growth (assuming any of us can afford to make an international phone call after we have finally paid the bank bailout plan - Hank? will you take a collect call?)

We commit ourselves to the successful conclusion of the Doha round of World Trade Talks. (Hey guys - don’t forget, we always add this bit into every G7 statement …)

At that point, most of the so-called G7 sherpas decide the G7 ministers need to be removed to a place where they can’t do any more damage to themselves or others.

Now then - add your own touch to this G7 communique.

LONDON, England — Why do I think there is genuine light at the end of the tunnel?  Because we have at last seen real, genuine policy responses.

Until now governments had done little more than “jawbone” the markets or spend money with increased liquidity.  More of the same, you might say.  But the U.S. bail-out plan, the UK government’s bank buy-up, the concerted cut in interest rates are all new, substantial measures.  They are necessary and maybe sufficient to damp down the fires.

I believe more interest rate cuts will be needed to increase consumer confidence … and I am NOT saying it will be business as usual. More banks will fail or merge; the wider economy will now start to rock like a ship on stormy seas.

We have entered a new phase now when ordinary people will no longer be spectators, but feel the effects through job losses, lower economic activity and reduced living standards. It was inevitable. Don’t buy anything from anyone who tells you otherwise.

LONDON, England – The global economy is like a patient that has gone in for cancer surgery. The cancer is in the organ known as the financial world. It is a deep cancer … of sub-prime dodgy lending debts.So the markets are now cutting away, through the fat, through the muscle, through the organs to get to this cancer, yes, causing damage on the way.

And they keep finding more of the cancer, so the markets keep cutting.

Once the tumor has been removed, the patient is stitched up again (in this case using bank bailouts and interest rates as sutures) but it will take some time before the patient is fully recovered.

There may be collateral infection, they may have to do other surgery. Certainly more medicines will have to be taken.

And that is why it will take many months, if not years before the global economy will be back to health. You cannot have this level of surgery into the financial world without some longer term effect.

OK - before someone asks me “what happens if the patient dies?” They don’t!