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Financial Crisis: Solution?

My ‘Big Idea’ is instead of bailing out the idiot banks, give half the money to each household in the US (call it election bribery) so that they can reduce their own debts and ‘kick-start’ parts of the economy again; the fact that this money eventually goes back the banks again as they generate actual money the proper way means everyone is a winner.

A more practical, longer term solution has been presented on the BBC by Ann Pettifor, author of ‘The coming first world debt crisis’ and executive director of Advocacy International…

[W]hat is required is an overhaul of the whole economic system; a system-wide fix.

That means, first, dumping the orthodox free-market zealots responsible for the policies that got us into this mess. Frederick Hayek’s and Milton Friedman’s de-regulation policies have already been dis-credited, with Republicans obliged to disown Margaret Thatcher and Ronald Reagan’s contempt for government.

Second, it will be vital to restore to the Federal Reserve and other central banks the power to set the rate of interest – across the whole spectrum of lending, so that all rates can be lowered on the massive debts incurred across the board in countries that followed the Anglo-American economic model.

Third, we must abandon the policy of holding down wages and other forms of compensation, especially if we want people to repay debts, and help salvage the banks. Jobs will have to be protected, or even created by government, and incomes must rise.

Fourth, we have to simply write off the debts of those poor people who cannot ever repay. Just as we write off the debts of companies or governments that can no longer pay, so we must recognise that many citizens are effectively insolvent. The refusal to acknowledge this truth lies at the heart of Mr Paulson’s plan – and that is why his plan will fail.

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