A nagging question which is haunting the government efforts to revive a dormant financial system especially in US: Can a credit crisis which was the cause of economy slowdown be solved with more debt? The economists have firmly answered a qualified NO to the situation. According to them, it will further worsen the situation and add to the deepening depression, nothing more than this. Then what should be the next move by the Govt. to recover the situation. The government should do its best to restore bank lending to prevent an even worse economic outcome.
U.S. Treasury Secretary Timothy Geithner was only the latest to proclaim what has now become an official mantra. Without credit, which he and others call the "lifeblood" of the economy, you can kiss recovery hopes goodbye. Basically the US economic system is critically dependent on the free flow of credit.
A huge part of the Treasury's economic rescue plan is based on reviving securitization. Experts widely agree that the public sector must enlarge its role during a time of crisis to ensure that the underlying momentum of the economy does not screech to an abrupt halt."In truth, not all economies run on credit. In a legitimate economy, it is not credit that fuels spending and investment, but simply income and savings," said Peter Schiff, president of Euro Pacific Capital in Darien, Connecticut. Prudent lending is a good thing. If creditors have cut back, it is because the risks associated with an environment of turbulence dictate that they should.
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