ALL eyes are now riveted on the proposed April 2 summit of the G-20 in London. The hope is, some kind of a miracle medicine would emerge from this summit and cure the current financial ailments and revive the world economy without in any way diluting the principles of market economy or doing away with the essential ingredient of capitalism—greed.

Meanwhile, it is more of the same bailouts and bailouts. Lenders who had lent bad are now being lent tax payers’ good money to remain afloat and resume lubricating with the investment loans the real economy which has come to an almost stand still without the fear of the new lines also disappearing in the dark void.

But then the consumer which needs to restart consuming so that the wheels of production are once again set in motion does not appear to be in the mood to oblige because he is terrorised for more than one reason. He has lost his house, his job and his savings by blindly worshiping the goddess of credit.

The banks gave him the impression that his credit tap would never go dry. Now that it has gone dry and taken along with it all his possessions he is in no mood to once more go on consumption spree. He wants to keep his consumption within the limits of the cash he has in his hands.

With one of the two main actors in the market economy—the consumer—rationalising his consumption, the other actor—the producer—is left with no option but to cut down on supplies. And with supplies being revised down to fit the demand production neccesarily is scaled down which in turn makes it unnecessary on the part of producers to seek large investment loans.

So, between the two--a reluctant banker and a terrorised consumer—they have virtually brought the economy the world over to a screeching halt.

No one knows how to get out of this situation. Some argue that all banks should be nationalised. Some say naationalisation is not the answer. Others say, if only the emerging markets were to slow down exports and step up imports, things may take a turn for the better.

The last suggestion takes the cake. Until about early 2007, the IMF and the World Bank inspired what is called the Washington Concensus, which in fact was the consensus of the rich countries, were advising the emerging markets to follow export-led growth policies. Now they want the developing world to slow down exports and speed up imports.

Here is what The Weekly Economist ( January 31-February 6) said in its leader: “Some Asians are blaming the West. The western consensus in favour of globalisation lured them, they say, into opening their economies and pursuing export-led growth to satisfy the bottomless pit of western consumer demand. They have been betrayed. Western financial incompetence has trashed the value of their investments and consumer demand has dried up. This explanation, which absolves Asian governments of responsibility for economic suffering, has an obvious appeal across the region.

“Awkwardly, however, it tells only one part of the story. Most of the slowdown in regional economic growth so far stems not from a fall in net exports but from weaker domestic demand. Even in China, the region’s top exporter, imports are falling faster than exports.

“Domestic demand has been weak not just because of the gloomy global outlook, but also because of government policies. After the crisis a decade ago, many countries fixed their broken financial systems, but left their economies skewed towards exports. Savings remained high and domestic consumption was suppressed. Partly out of fright at the balance-of-payments pressures faced then, countries have run large trade surpluses and built up huge foreign-exchange reserves. Thus the savings of poor Asian farmers have financed the habits of spendthrift westerners.”

Meanwhile, the irrelevant debate whether banks should be nationalised or not is continuing unabated and without any direction. There is one school of thought which says no country should be eager to nationalise its banks, except in extremis.

Those who subscribe to this school of thought say that while dramatic interventions are satisfying for a time, they do not necessarily solve matters. Nationalisation could be needed, but it is not a panacea.

These circles insist that governments are bad owners for banks as they are heavily conflicted because, although politicians like to castigate bankers for risk-taking, they also push them to lend freely in order to make the voters happy.

And those who are for nationalisation say that once again, the British government is doing too little, too late, to head off the impact of the global financial tornado on Britain’s increasingly vulnerable economy.

Those who subscribe to this idea say that instead of propping up private banks with ever more complicated incentives to maintain credit flows, the obvious answer is to nationalise them.

They say that all manner of unlikely champions of public ownership are now emerging to demand the government does just that: from Jon Moulton, boss of the private equity firm Alchemy, to Jim O’Neill, chief economist of Goldman Sachs, and former Monetary Policy Committee member professor Willem Buiter - not to mention the Liberal Democrats and a growing army of Labour MPs and trade unionists.

By clinging to a halfway house of hands-off part-nationalisation, the government, they say, is getting the worst of both worlds. Billions have been pumped into banks to support economic recovery - and lost as their shares have tanked - but lending has actually fallen, while the cash has been used to shore up their profitability.

The banks have incompatible obligations - to maximise profits for shareholders and meet ministers’ lending demands - while the government is already effectively shouldering their risks and liabilities, (one reason why nationalising the banks should not have the impact on national debt some fear).

And here is what Nobel winner Professor Stiglitz, the former chair of the White House Council of Economic Advisers, told The Daily Telegraph recently. He said that Britain should let the banks default on their vast foreign operations and start afresh with new set of healthy banks.

”There is an argument for letting the banks go bust. It may cause turmoil but it will be a cheaper way to deal with this in the end. The British Parliament never offered a blanket guarantee for all liabilities and derivative positions of these banks,” he said.

”The new banks will be more credible once they no longer have these liabilities on their back.”