It has become clear that my prediction of the cost of the bailout plan will turn out to be true (both in the cost and the fact that it would'nt work). I present the following suggestions. If our leaders, be they Republican, Democrat, Independent or Libertarian do not act and act quickly America and the rest of the world will experience a prolonged depression. The time frame estimated to be anywhere from two to ten years (the ten year estimate is based on the very real situation that occurred in Japan). Here is what needs to be done:
1. Another rapid round of policy rate cuts on the order of at least 150 basis points on average globally.
2. A temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made.
3. A rapid reduction of the debt burden on insolvent households preceded by a temporary freeze on all forclosures.
4. Massive and unlimited provision of liquidity to solvent financial institutions.
5. Public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses.
6. Massive direct government fiscal stumulis packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government.
7. An agreement between lender and creditor countries running current account surpluses and borrowing, and debtor countries running current account deficits to maintain and orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.
