What other measures could the U.S. take if the bailout package and interest rate cuts don stabilize markets and the economy?
The U.S. government and Federal Reserve have used two of the key tools in its toolkit to try to stem panic and stabilize the financial system: The $700-billion bailout of the problem assets at the big banks, and an interest rate cut. But there are other tools as well that have not come into play yet. They could try to stimulate the weak economy by cutting taxes to individuals, they could beef up spending on federal infrastructure to create jobs, or they could give specific tax incentives, for home purchases for example. And while the U.S. government has already boosted insurance on bank deposits to $250,000 from $100,000, it could follow the lead of some European countries and move to unlimited insurance. And if things get even worse at any of the major financial institutions, the government could take direct equity stakes. That seems an unlikely move, but the current situation is unprecedented.
