Another day another rescue plan. So large and so frequent have been the efforts of the world’s financial authorities to right the ship of the global economy that you could be forgiven for wondering whether another one will really make that much difference.

The crisis is now so unfathomably massive in fact, that yesterday’s announcement by the US Federal Reserve that it had come up with yet another innovative way to drop hundreds of billions of dollars’ worth of oil on the troubled waters didn’t seem to have much immediate impact on the markets.

But it was an important decision nonetheless, perhaps essential to counter the growing risk that the banking crisis might spill over into a full-scale economic disaster.

The Fed’s latest response is to begin to buy so-called commercial paper direct from companies. Commercial paper is debt issued by corporations for relatively short periods - anywhere from a few days to a few months, and is the means by which they fund much of their day-to-day operations. Normally this market is deep and liquid, with investors - mostly financial institutions - buying and selling the paper at very low interest rates, and happily rolling over the debt as it expires.

But in the past week, the market has frozen almost completely, as investors have become unwilling to take on any risk at all and instead of rolling over expiring commercial paper, they have been hoarding their cash. The amount of commercial paper outstanding declined by 10 per cent in the past two weeks - a drop of almost unprecedented scale.

This is among the scariest of developments we have seen so far in the transmission of financial problems to the real economy. If companies cannot maintain their borrowing they simply cannot finance their operations - everything from buying from their suppliers to paying their employees, and in the past few days there have been worrying reports that some companies were starting to experience these difficulties. The Fed’s decision further boldly extends its reach into parts of the economy it had never gone before. Until just a year ago, the Fed was essentially a backstop, lending only to a small universe of primary dealers, that put the central bank several steps back from the front lines of the economy. The latest move means the Fed is now in the direct business of making loans to the private sector. At this rate in a couple of weeks the central bank will be printing up credit cards for cash-strapped consumers.

Will it be enough to stop the rot? The answer, once again, is; while helpful and necessary, this one will not on its own save the world. A fully functioning commercial paper market is essential to a smooth-running modern economy. But the bigger challenge confronting US companies is the deterioration in the economy, accelerating declines in house prices and weakening consumer spending and business investment. This financial crisis has metastasised into an infection that has the potential to wipe out wealth in every corner of the globe. It has spread beyond the ability of one central bank to cure it. The loss of confidence in financial institutions is so complete that, given how interconnected banks are, only global action will begin to ease the stress. Events in the past few days suggest we are some way from a fully comprehensive global solution to the crisis.

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