Olivier Blanchard, the IMF’s chief economist in an excellent article in Economist News paper dated 29th January 2009 says that if the policymakers act decisively, private demand will recover sooner rather than later and, within a year or less, we can be on the path to recovery.
“First and foremost, reduce uncertainty. Do so by removing tail risks, and the perception of tail risks. On the portfolio side, establish a price, or at least a floor on the price, of the troubled assets. Ring-fence them or take them off bank balance-sheets. On the consumption side, commit to do whatever it will take to avoid a Depression, from fiscal stimulus to quantitative easing. Commit to do more in the future if necessary. Above all, adopt clear policies and act decisively. Do too much rather than too little. Delays in financial packages have cost a lot already. Further rounds of debate will stoke uncertainty and make things worse” says Olivier Blanchard in that article.