Is the “cash payout plan” the most effective solution to stimulating the economy?
Financial instability triggered by the subprime–mortgage problem due to the decline in housing prices in the United States has drastically increased since the bankruptcy of Lehman Brothers last September. Besides anxieties for weak financial institutions in Europe and the United States, this instability generated worldwide credit crunch and steep fall in stock prices. In the US, which is the origin of the current financial instability, the Emergency Economic Stabilization Act of 2008 was enacted at the beginning of last October to soothe credit uneasiness. According to this act, bad loans will be purchased with public funds of up to $700 billion. Furthermore, the Federal Reserve Bank (FRB), the European Central Bank and other central banks all over the world repeated large cut of interest rates to eliminate credit uneasiness, but the global financial instability still remains.
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