The short version of my current alternative proposal to the TARP remains:
- Normalize bank liquidity by allowing Fed member banks to borrow unsecured from the Fed in unlimited quantities.
- Have the Fed set term lending rates out to 3 months in addition to the Fed funds rate.
- Extend FDIC insurance to Fed deposits at member banks to keep any insolvency losses at the FDIC.
- Remove the cap on FDIC insurance to eliminate the need for money market funds.
- Declare a ‘payroll tax holiday’ and reduce social security and medicare payroll deduction rates to 0% until aggregate demand is sufficiently restored.
This would immediately end the current crisis.
Remaining issues include the increased demand for energy consumption as the economy recovers, and associated price pressures.