FT.com / Comment / Editorial - Sound and fury in the world economy

FT.com / Comment / Editorial - Sound and fury in the world economy: "Economies are behaving unpredictably and will continue to do so. The instability is both cause and consequence of the great uncertainty that has been spreading out from the financial markets. Fearful and confused, people react erratically to changing news, reinforcing confused market behaviour.

It does not help that our economic theories were constructed for a different world. Most models depict economies kept close to equilibrium by smooth adjustments. But we face a very real danger of large, abrupt changes: bank collapses or currency crises. And unlike what most models assume, prices are not properly clearing all markets: the cost of credit may be record-low – but it is hard to find lenders not shrinking their balance sheets."