Some signs of stability are beginning to
appear in the financial markets. The Goldman
Sachs Financial Stress Index (FSI) has
reversed course and declined sharply since
the beginning of the year following a sharp
spike at the end of 2008.

Disposal of financial institutions’ troubled
assets does not not, however, appear to be
approaching a conclusion by any means. With
home and other asset prices continuing to
decline, there is no ruling out the risk of the
global economy experiencing the type of
deflation Japan saw in the 1990s.