I am not an economist, and certainly can't ascribe to DHE the economic positions I take in this blog. From where I sit, however, some things appear clear to me. The theory of rational expectations tells us that if people think something is going to happen in a a market, they will act in such a way as to precipitate it actually happening. So, if people believe that the market will crash and burn, they will act in a way that makes it crash and burn.
That seems to be happening.
I would respectfully recommend the following to the President, who seems to be short on ideas at the moment.
1. Stop talking
2. Tell your cabinet members to stop talking
3. Ask the Fed Chairman to stop talking
4. Suspend trading on Tuesday, and give the market an extra day to calm down.
5. Meet with other Heads of State and send out a coordinated message that banks will not fail, and that Iceland will not declare itself insolvent (where is the World Bank when you need them?)
Engage former Presidents Clinton and Bush to speak to the nation together about moving forward. Both are respected leaders in the US and abroad, and they respect each other. This is a crisis that cries out for leadership that is above politics. Right now in the US, we can't trust what Obama or McCain is saying---the political climate is too intense. No one trusts what President Bush is saying.
We need a credible voice, or voices. We need to hear from Bill Clinton and George Bush I. Soon.