The levees in New Orleans held fast as hurricane Gustav landed last week, sparing the city from the physical devastation experienced under Katrina. And had the levees fallen, the human tragedy would have been significantly reduced as most of the population had already been evacuated from the city.

This situation stands in stark contrast to the devastation that a deleveraging hurricane continues to wreak in the US and other parts of the world. Unlike New Orleans, the levees of the global economy have broken, one after another.

Also unlike New Orleans, a significant part of the global economy still lies in the path of this hurricane. Having caused havoc in the financial and housing sectors, the damage now encompasses sinister economic storms that are starting to rage in employment, consumption and investment in the US and abroad.

This realisation has rightly prompted Sunday’s dramatic announcement from the US Treasury that it will bring Freddie Mac and Fannie Mae, the two giant mortgage finance companies, under complete government control. The move aims to create a new levy that will halt further devastation caused by the deleveraging hurricane. And in establishing this levy, the US government is seeking to strike the delicate balance that is intrinsic to real and perceived “bail-outs”: committing sufficient public financing to avert disaster yet limiting the risk of moral hazard.

This is the third time this year that the US authorities have made a big policy announcement on a Sunday. The first, on March 16, provided emergency support by the Federal Reserve to investment banks. It generated a rally in global markets that lasted only two months before grim reality set in again.

The second, on July 13, signalled that the government’s wallet stood behind Freddie and Fannie. This yielded market relief for just a month. In both cases, the affected segments of the US economy did not have enough time to clean up the debris and start the rehabilitation and reform process.

Will this latest announcement prove more effective? The answer ultimately boils down to two big issues, which policymakers and market participants would be well advised to keep front and centre as they debate the finer points of technical specifications and the distribution of winners and losers.

First, the success of the action depends partly on whether it “crowds in” capital from both domestic and foreign sources.

This is key to stabilising markets and drawing a line under the process of global economic decline. Here, a commitment of the government’s balance sheet is necessary but not sufficient. Since the US government is already running a growing fiscal deficit and the country as a whole has a current account deficit, its balance sheet must be supported by other capital inflows, especially on the part of foreign holders of US debt who have become increasingly skittish in recent weeks.

Second, the action must be part of a broader policy response that has both a domestic and international dimension.

In this regard I have been impressed by the repeated observations of officials from countries that previously experienced the brutality of deleveraging hurricanes, particularly in Asia in 1997-98. Noting the piecemeal nature of US policies in the past year, they stress the importance of a holistic response from the authorities, including meaningful co-ordination of an often-diffused domestic policy apparatus and explicit, timely and targeted international support. This means, at the minimum, alleviating the housing problem in other stretched jurisdictions.

Over the next few weeks we will get a lot of information as to whether these conditions are being met. If they are, this latest levy will prove effective in stopping the deleveraging hurricane and allowing for clean-up operations to start – including reconciling markets to the new realities on the ground and leading to the establishment of better preventive measures against future hurricane formations.

If, however, the conditions are not met, the global economy will experience further significant devastation that will go well beyond housing and the financial sector. In this scenario, consumers residing in highly leveraged economies such as the US and the UK will feel even sharper and more prolonged pain, followed by those in several emerging economies.

The writer, co-chief executive and co-chief investment officer of Pimco, is author of When Markets Collide: Investment Strategies for the Age of Global Economic Change (McGraw Hill)