The Federal Reserve announced that it was starting an ambitious program to buy up to $99 billion worth of unsecured short-term debt, using a little-known federal instrument that dates to the Great Depression of the 1930s.
The so-called commercial paper market is the method many businesses rely on to fund day-to-day operations.
The Fed announced in a statement that the creation of the Commercial Paper Funding Facility, which will complement the Federal Reserve's existing credit methods of providing liquidity to term-funding markets.
In Madrid, Prime Minister Jose Luis Rodriguez Zapatero announced Tuesday that Spain is setting aside up to $41 billion to help the financial sector, and said the government would also increase the deposit insurance for citizens to $136 billion per account, a twofold increase.
Australia took action too, announcing it was lowering its key interest rate from 7 percent to 6 percent, the biggest reduction in more than seven years.
In a statement announcing the cut, the governor of the Reserve Bank of Australia attributed the bank's decision in part to the "the recent deterioration in prospects for global growth, together with much more difficult market conditions even for credit-worthy borrowers."
The United States has already taken an aggressive approach on the interest rate front, with the Federal Reserve and its Chairman Ben Bernanke cutting its key interest rate from 5.25 percent in September 2007 to 1.5 percent today.
Lower rates are generally a stimulus for the economy because they make the cost of capital cheaper, encouraging businesses to expand and invest. However, in the current financial crisis, interest rates have not been the issue -- no one is willing to lend due to a lack of confidence that they will be repaid.
The Fed and European Central Bank worked together to cut rates after the Sept. 11, 2001, terrorist attacks. Such acts are highly unusual, and today's move is unprecedented.
England and the European Central Bank were both expected to make cuts but other countries were seen as a bit more reluctant.
The Bank of Japan already has its key interest rate at 0.5 percent. The central bank confirmed yesterday, as expected, that it would leave the interest rate unchanged. Given that country's 2 percent inflation rate, the rate is essentiality negative.
David R. Kotok, co-founder and chief investment officer of Cumberland Advisors, said Monday night that such cooperation "will send some psychological message."
"It really is not needed," Kotok wrote in an e-mail. But "each of them will cut anyway, so we will see serial cuts in close proximity."
Mike Ryan, head of wealth management research at Americas at UBS, said that the United States and other countries have so far taken a "parochial approach" to addressing the financial crisis by addressing it on a "local level."
"The approach is almost exclusively done on a country by country, event by event basis," he said.
Ryan said that, instead, the G8 countries should be working together to address the financial crisis with a "global approach."
That should include but not be limited to a coordinated effort to cut rates by the different central banks, he said, including the European Central Bank, which had -- before today -- yet to cut rates recently because of inflation concerns.