whole needs to have a greater understanding of the global financial crisis and its consequences for all of us. this requires greater interaction and a common purpose determining the appropriate course of action that we, as a nation, need to take to stave off the worst ravages of the crisis. we have experienced the most remarkable period of togetherness in the past month, built around soccer 2010 and being host to the world, both the hundreds of thousands who have come in person, and the millions who have watched on tv and other media. we need this togetherness and sense of what we can achieve to continue beyond the world cup, and to permeate other aspects of society. there also needs to be greater coordination and cooperation between policies. it is not possible to have loose monetary policy and loose fiscal policy and a weaker exchange rate. this will not translate into a depreciated real exchange rate. rather, it is a simple recipe for higher inflation. we need an appropriate mix or combination of both macroeconomic and microeconomic policies that will bring about higher productivity, higher growth and employment in a low inflation environment. today, what is clear is that central banks the world over have been given additional responsibilities, explicitly or implicitly. expectations are that central banks will, and can, deal with macro - prudential, micro - prudential, financial stability, crisis management, provision of liquidity and still meet their core responsibility, namely independent execution of monetary policy. financial stability crises build up over years, and what the prevailing global crisis has shown is that it is much harder to restore financial stability once it has been lost than previously anticipated. another lesson is that there is an increasing need for co - ordination and cooperation between central banks, governments and markets, within a sound regulatory environment and with a focus on maintaining systemic stability. in conclusion, what we are seeing is a bifurcated world where the developed countries face gradual de - leveraging with lower growth for longer in a more regulated environment, impacted upon by severe austerity measures and poor public finances. furthermore, the us faces increasingly large structural headwinds, including deteriorating public finances, while the eurozone is likely to see low inflation for some time to come. on the other hand, key emerging countries such as china, india and brazil, seem set to continue to grow and develop. our challenge is to ensure that south africa, with so much going for us, is one of these key emerging countries.

who owed how much to whom resulted in overnight interbank lending rates increasing significantly and central banks had to provide additional liquidity to facilitate the orderly functioning of financial markets. current estimates regarding the scale of losses suffered by mortgage owners in the us range between us $ 400 billion and us $ 500 billion, although in a recent article krugman ( 2008 ) states that “ i think there ’ ll be $ 1 trillion of losses on mortgage - backed securities... ” the turbulence came to the fore in many ways. probably the most pervasive immediate consequence was the repricing of risk. global markets generally experienced considerable volatility and illiquidity and borrowers were confronting tighter terms and conditions, spawning fears of a “ credit crunch ” which could harm economic growth. credit spreads which had declined to extraordinarily low levels picked up considerably, as illustrated in the accompanying graph. policy reactions to the turbulence one should point out immediately that some part of the turmoil – an upward adjustment to the risk premia imbedded in the prices of a range of financial assets – should be welcomed as a normalisation of affairs, such premia previously having been unsustainably low. however, authorities had to be mindful of the need to prevent total overshooting behaviour, and had to ensure the continued smooth functioning of the financial system as a whole. at the same time the hard - won gains in the fight against inflation had to be consolidated and protected, keeping inflation low and stable. fortunately, the deterioration in the global inflation environment due to the rising prices of energy and food was partly offset by the continued impact of globalisation, the pursuit of sound macroeconomic policies and the effect of a long period of low inflation on inflation expectations. when the turmoil struck the financial markets in the united states quite visibly in august 2007, the federal reserve responded decisively by loosening monetary policy and adding some liquidity to the money market. this provided some relief to cash - strapped borrowers. over the subsequent six months the authorities in the us loosened monetary policy further, with the objective among other things to restore the affordability of housing and halt the rising delinquency rate. the fed also became engaged in match - making and rescuing troubled institutions. a number of prominent financial institutions had to write off huge amounts on account of bad loans, dragging down their share prices and raising concerns regarding their status as creditworthy counterparties. in the past few weeks the federal reserve put its balance sheet in