The Federal Reserve and European central banks have orchestrated a coordinated reduction in interest rates:

Central banks around the world cut short-term interest rates by up to half a percent on Wednesday after investors across Asia and Europe unleashed waves of sell orders onto already depressed stock exchanges.

The Federal Reserve, the European Central Bank and other central banks from Britain and Switzerland to Canada and China announced rate reductions within seconds of one another. The British government separately announced a plan to pump billions of pounds into the country’s leading banks as part of a plan that would result in considerably greater government influence over the financial sector there.

The Fed said in a statement that, because of weakening economic activity, it had cut the Federal funds target rate by half a percentage point, to 1.5 percent. It also cut its discount rate by the same amount. The vote was unanimous.

The European Central Bank cuts its benchmark rate to 3.75 percent, from 4.25 percent.

The unprecedented move has had little net effect on the stock markets either here or in Europe. Asian markets are experiencing panic selling.

The trend for gold is up, generally a sign of uncertainty. Or pessimism.

The Washington Post adds:

Coming after an unprecedented intervention by governments into the market in recent weeks — from bank bailouts and corporate rescues to a rewriting of basic economic policy — central bankers were becoming nervous that the situation has not shown more obvious signs of improvement, said Howard Archer, an economist with the Global Insight consulting firm who specializes in the U.K. and Europe.

“The various steps taken globally in recent days to try to alleviate the financial sector crisis have had very little impact,” Archer wrote in an analysis of the rate cut. “Consequently, it is clear that the authorities now believe that coordinated, wide-ranging action is the only effective way of dealing with the problem.”

I think this move underscores the point I’ve been making for some time: the financial crisis is a global one. A globalized economy requires globalized tools for dealing with shared problems and there’s no way that the Fed or the U. S. government will get a handle on the ongoing financial crisis without coordinating its actions with their corresponding numbers overseas.

I continue to believe that we’re not ready for world government. Government requires consensus and there’s just not enough consensus on basics around the world to make world government practicable or just.

But ready or not we’re going to see greater coordination among central banks and governments than ever before.

UPDATE

The joint statement from the central banks is here:

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.

Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions.

Or, said another way, the financial crisis is causing a slowing of economic activity and reduction in demand for commodities and this is no time to worry about inflation.