A Novel Solution to the Credit Crisis

Back to the Basics

Back to the Basics

A quick search on google for solution to the credit crisis will yield over 2.7 million results. Sifting through only a handful of these websites, one finds many of the old macroeconomic principles, just packaged differently.

These solutions are provided by a range of people; from high-profile economists to the average lay person with an opinion. But what I found that the majority of solutions to the credit crisis that are being discussed and/or implemented fail to realize the importance of getting money into the hands of individual consumers as quickly and efficiently as possible. The benefits of this simple fact will be immediate and very positive.

Aside from the obvious benefit of providing consumers with increased cash flow, which will make some room for increased spending, another benefit is that with the help of a novel initiative, savings at banks can be dramatically increased. So what is this novel initiative that can achieve this increase in savings from consumers? A dramatic increase in savings can be achieved with the use of a promotional program instituted by banks whereby a portion of the interest payment towards a mortgage is deposited into a high yielding savings account. Once the deposit is made into the savings account, the client is given the option to continually top-up the savings account with a nominal amount on a daily basis.

The mechanism that would allow them to top-up their savings account would be a simple transfer made from their primary deposit account to their savings account based on a predetermined dollar amount per number of transactions they do with their debit cards. Several banks have already instituted similar programs to this to encourage their clients to save. There are several benefits to this approach.

The first benefit is that there will be no added financial burden on cash-strapped consumers, who can continue to make the same mortgage payments they have always made. Furthermore, the fact that only small amounts are transferred from their primary deposit account to a savings account on a regular basis means that savings will increase without burdening the consumer. The most important benefit of these savings initiatives is the fact that banks will be once again flush with cash from regular deposits made to savings accounts, which in turn can now be used to offer credit to worthy borrowers. Ultimately, this approach would provide a quick recovery from this recession and free up the credit market.


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