Summary
Hence a full package of measures may need to consist of most, or all, of the following: * Coordinated interest rate cuts by all major world economies. * Guaranteeing all bank deposits, at least for individuals, but quite possibly for all depositors, for a significant period - a year or more. * Guaranteeing that no bank anywhere will be allowed to fail for at least the next several years - whether by the authorities recapitalising any failing bank, or at least providing liquidity in the event of a run. * Removing compromised assets from the balance sheets of private financial institutions by government sponsored and financed mechanisms. * Sustaining any important market that ceases to function, be it the commercial paper market, inter-bank lending, or whatever. * If necessary, making short-term loans directly to corporations - essentially buying commercial paper for cash * Easing the repayment terms on existing mortgage holders, to reduce the flood of defaults and foreclosures that will otherwise occur. * Perhaps going to even more unusual lengths, if the long end of the bond curve remains reluctant to decline, because this would prevent the property market from recovering and cause bankruptcies to increase particularly sharply.
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Extract
Not Dancing Now
iT IS TOO SOON TO TELL HOW SUCCESSFUL, AND HOW durable, the policy actions so far will prove. What has already become clear, however, is that this is no longer - if it ever was - a single-solution problem. How did matters come to this? At a minimum, the causes include the following:
At the macroeconomic level, the United States elected to fight a war and to cut taxes, a dangerous duo that led to the federal government consuming way beyond its income. The US Federal Reserve, meanwhile, kept interest rates too low for too long following the dot.com c...See the full content of this document
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