A simple solution to the financial crisis

I agree with the majority of the American people that there should no more bailouts. Why? Because that is not a solution. We have already seen that noone knows where the $350 billion went. The problem is the economy as a whole and not any individual industry. You cannot bail out one industry because the American economy is not dependent on any one industry.

The problem is the general slowdown in the economy, that is, demand is less than the supply or not enough demand. The solution lies in boosting up demand slowly and steadily. The solution lies in creating a business environment which will create demand. So here is the best solution for the American economy:

1. Utilise the billions that US is giving out in bailout money to reduce taxes all around including income tax, sales tax, excise. With reduced taxes, the cost of goods and services will fall dramatically. In addition, individuals will have more money to spend. With reduced prices and higher disposable incomes, higher demand will be created which will start the process of revival.

2. Reduced prices of goods and services will also increase demand of American goods in the international markets.

3. Government should initiate public works / infrastructure projects. These should be put on fast track.

4. Make credit available at low interest but money should be given away to anyone who asks for it as that is what brought about the financial crisis.

5. No big company will go under. I agree with the republicans and those of the view that let the marketplace decide whether a company needs to survive. If the business is viable, somebody will buy it. If you continue to bailout industries after industries, you will have demands from every industry for bailout funds. As we have seen, even the porn industry in US is asking for $4 billion bailout money. However, the restructuring should be done fast. As such, special bankruptcy courts should be set up to expedite restructuring under the Chapter 11 / bankruptcy laws.

I think the Indian government announced some of the above measures which were relevant to India which I think were the right steps in ensuring that the financial crisis does not hit the Indian economy very hard. Of course, getting infrastucture projects started in India is like reaching the moon but in America, this can be done faster.

Now you must be thinking who is this guy when the governments have big name economists to advise them. I am just an ordinary guy using common sense.

I do hope that President-elect Barack Obama is listening.

Avinash Narula

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