Fixing the Recession: Three Unconventional Ideas

By: Andrea Terzi

There are no ’scarce resources’ causing the financial crisis and the global recession! And yet, no self-correcting force is likely to operate soon. In a “money crisis”, only political authorities (who are the ultimate monopolists of money) can provide effective answers. And to be effective, these should be based on out-of-the-box thinking.

Bank deposits are based on depositors’ confidence, and nothing else: banks’ liqudity is (always) only a fraction of deposits.

Unconventional idea #1: The US Fed should remove the self-imposed $100,000 cap on insured bank deposits. Make insurance unlimited!

Banks can’t find enough liquidity, and when they can’t, they declare bankruptcy even when their balance sheet is sound!

Unconventional idea #2: The US Fed should provide unlimited, unsecured lending at the Federal Funds rate. Banks should be able to borrow all they need.

Demand, incomes, and employment are diving. Lowering interest rates is completely ineffective now.

Unconventional idea #3: A fast and very substantial fiscal package is needed with no consideration to deficit caps! A fast action is to declare a payroll tax holiday.

The euro system is at risk of more and larger insolvencies. In addition, because of Euro rules governments cannot guarantee the checks they write! It is hard to change this structure during emergency. The above proposed measures may mend the Euro mess too, for the moment… and if we are lucky!