Governments should consider buying stock on share markets to stop the rot and restore some confidence, CommSec chief equities economist Craig James said today.
The Australian sharemarket plunged to just over eight per cent today as investors showed no confidence that worldwide efforts to rescue the ailing global financial system would work.
Markets around the world continue to fall dramatically despite efforts by central banks to loosen up credit markets by cutting interest rates and moves by governments to rescue ailing banks.
Mr James said investors were standing away from share markets, not wanting to buy in the belief that stocks would become even cheaper.
He said desperate measures were needed to stabilise share markets.
"To get stabilisation, you need some buying," he said.
"Governments have got to be looking to buy shares now.
"If individuals saw that governments were confident enough to buy the stocks, then clearly they would have confidence to return to the market as well."
Mr James said the Hong Kong government had invested in shares in 1998 to stabilise the Hong Kong market and ended up making a profit.
Government could buy stocks across the board, he said, starting with the "heavyweight" stocks such as those offering basic goods and services.
"A lot of these stocks have fallen to below their asset value," he said.
Mr James said that for a free-marketer such as himself and for most other economists around the world, suggesting that governments should enter the share market was the worst thing one could say.
"But, at these points in time, you've got to say, well, the market has failed and now we need direct intervention," he said.
"The only one that can intervene is government."