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What Can You Do?

What Can You Do?. Curing the Mess and Preventing it happening again. Rescue the Banks. Two different approaches: In the USA there is a willingness to let financial institutions collapse into bankruptcy. Lehman Brothers. Or it will assist take- overs .

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What Can You Do?

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  1. What Can You Do? Curing the Mess and Preventing it happening again

  2. Rescue the Banks • Two different approaches: • In the USA there is a willingness to let financial institutions collapse into bankruptcy. Lehman Brothers. Or it will assist take-overs. • In the UK, the approach is for the government to nationalize the broken banks. They are taken out of the private sector. (Royal Bank of Scotland, Northern Rock…)

  3. Allow lending to continue • State puts taxpayer money into the banks to give them some money to lend. • But Banks are totally concerned by debt, and so they keep the money to cover possible debt exposure. • They still pay themselves bonuses!

  4. Direct Stimulation of Economy • Direct incentives to get people to spend more: • Cut in VAT of 2% (complete failure) • Tax Cuts • Tax Refunds • Price reductions by manufacturers and retailers (e.g. Christmas and post-Christmas sales). Price of cars in D and Italy.

  5. Asset Protection • Insure peoples’ deposits in the banks through federal insurance—raised to $200,000 in the USA. Gives confidence. • Reduce interest rates to rock bottom, but this keeps depositors away.

  6. Deficit Financing • This is mainly aimed at Job-Creation by spending money the government does not have (Keynesian economics). • It was used in the 1930s during the Depression. Mostly focused on infrastructure building (plus parks, civic amenities etc).

  7. Restore Confidence • Whose confidence? The public or the finance companies, or the manufacturers. • Fight protectionism or give in to it. • Confidence is based on real improvement in statistics or is it just what people “think?”

  8. What can governments do? • Falling demand means that you can either stimulate demand (deficit funding) or you can boost local demand by cutting off the imports from other countries (“Buy America,” “British Jobs for British Workers.” Outsourcing.) • Increasing government control of economy

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