He denounced that the drive to outsource work to the cheapest bidder had endangered the rights of workers, and demanded that workers be allowed to organize in unions to protect their rights and guarantee steady, decent employment.

Benedict called for a whole new financial order — "a profoundly new way of understanding business enterprise" — that respects the dignity of workers and looks out for the common good by prioritizing ethics and social responsibility over dividend returns.

Kirk Hanson, a business ethics professor at Santa Clara University, said the encyclical is likely to spark debate over capitalism and social justice.

"When a group of U.S. Catholic bishops issued a similar statement during the Reagan years, it sparked a nationwide debate about the fairness of our capitalist system," said Hanson, who chaired the hearings leading up to the bishops' statement.

Benedict stressed he wasn't opposed to a globalized economy, saying that if done correctly it has an unprecedented potential to redistribute wealth around the globe. But he warned that if badly directed and if the problems aren't fixed, globalization can increase poverty and inequality and trigger the type of crisis under way.

Benedict has written two previous encyclicals in his four years as pope: "God is Love" in 2006 and "Saved by Hope" in 2007.

His pronouncement on world finance for his third raised questions about the state of the Vatican's own books.

The Vatican was implicated in a major Italian banking scandal in the 1980s in the collapse of Banco Ambrosiano, in which the Vatican's bank was the major shareholder. The Vatican agreed to pay $250 million to Ambrosiano's creditors, while denying any wrongdoing.

Last October, at the start of the meltdown, a top Vatican bank official issued assurances that its deposits were safe and had no liquidity problems, saying the bank had stayed away from derivatives, the financial instruments blamed for many of the steep loses in the meltdown.

Other officials have said 80 percent of the Vatican's investments are in low-yield government bonds and 20 percent in stocks and that the Vatican follows an ethical code: no investments in companies that produce arms or contraceptives.

The Vatican in its annual financial statement issued Saturday said it ran a deficit in 2008 for the second straight year, posting a euro900,000 ($1.28 million) loss, compared with a loss of euro9.06 million a year earlier.