As I write this a second rescue package is about to be voted on by Congress.

This time it looks like there is more chance that it will get passed. The main changes are that it has raised the amount that normal citizens have guaranteed if their savings are affected by the collapse of more banks. It also gives some tax breaks to smaller businesses, presumably in order to stimulate some ‘real’ economic activity rather than the odd mix of complex wranglings that have been going on at the top of the financial system.

But the changes to the package are pretty small, and even if it does get passed there are a lot of questions still hanging over the economy. The massive intervention that governments around the world have made already will inevitably change how events over the next months and years will pan out. In order for some sort of stability to be maintained, it’s crucial that governments now act together. That currently looks quite unlikely.

A good example is the recent action of the Irish Government to guarantee savings in six major banks. As a result of their action, lots of British savers began moving their funds into Irish banks, feeling that they would be safer in an economy where they are guaranteed against a bank’s collapse. So far the UK has not followed in Ireland’s footsteps, but Gordon Brown was under pressure to do so. The risk with isolated actions like those of the Irish Government is that there will be a domino effect where savers panic and start transferring money across borders and the damage to each economy is made even worse. At a European level, France’s President Sarkozy has rejected claims that he was planning a €300bn EU fund to bail out struggling financial institutions.

The important thing to note about these events is that sometimes even the mention of possible moves can affect what happens next. From the citizens who have their money in banks, to the traders who are watching governments’ responses to inform their investment decisions on the markets, it is all about confidence. When customers feel safe about where their money is, national governments don’t need to act to reassure everyone. When investors feel confident about the companies they own shares in, markets don’t fall by everyone beginning to sell.

We now have free market structures being owned and bailed out by the public bodies they are supposed to exist of independently. So already the whole idea that we have a private economy existing in any way independent of government has been blown out of the water - you can’t massively regulate a free market and still call it by the same name.

However, because the vast majority of the financial and political elite are stuck in the free market mindset, this isn’t being consciously acknowledged. Until something even more radical happens to public policy globally, investors will continue to act in this schizophrenic way, as if the whole system exists independently of regulation, even though it is one bloody massive piece of legislation that they are all waiting for to give them the confidence to continue investing.

We are basically in limbo.

It’s important that we acknowledge the various contradictions that we’re now witnessing around us. Instead of just talking about investor confidence, we need to start instilling confidence in public policy . The only way we can do this without causing a domino effect of national governments acting in isolation, is to quickly and decisively rally around one internationally-focused public policy. This is kind of what is happening with the rescue package that is about to be voted on again in America (and this is one of the reasons that Sarkozy was quick to dispel the rumours that he was planning something similar in Europe), but it’s only a short-term measure that doesn’t address the root causes of pressures on the global economy.

Decisively acting in favour of one government policy will allow investors to acknowledge the shifted line between the public and private sectors, and for national governments to engage in discussions with each other in order to protect their own local economies without damaging those around them. Instead of discussing the prospect of nationalising various institutions, we should be talking about the best way to internationalise given how many of the companies we’re talking about are multi-national by their very nature. It may be that national governments are the ones that carry this out, but without putting decisions in their relevant global context we won’t get anywhere.

One of the crucial areas that needs to be acted on internationally in order to give investors and policy-makers confidence is energy independence for struggling local economies, and the need to move away from increasingly expensive fossil fuels. There are some voices already talking in these very clear and logical terms. Unsurprisingly (and inevitably given the structure of our interdependent global economy), the debate starts in America…

Here’s a short speech by Al Gore to kick things off: