There are about 11 banks which have gone bankrupt in the current crisis. “Well, this just the beginning”, warns the Federal Deposit Insurance Corporation. The corporation has listed an unbelievable 117 banks as being in the danger zone. The outcome will result in an outflow of money from the pocket of the common man. The US government debt has crossed $10 trillion. In such a situation, is the bailout being used, the right tool? This will aggravate the situation. It is believed that the bailout will not help in improving the situation to the expected level. The problem with the crisis is that the smart people who provided solutions to almost all the financial problems of the world are themselves in need of a solution now. The bright minds have failed this time and they have failed miserably. The bailout plan is not going to stop the fall of home prices.

Is the solution rightly designed and targeted? The bailout plan goes this way: The treasury will be the biggest holder of distressed assets in US; it will provide funds to the distressed banks. It will improve their balance sheets. The government will shell out the money in three instalments. In the first phase, it will shell out $350 bn, followed by $100 bn in the second phase; the balance will be shelled out in the final phase.

A recent paper put out by the economists of the International Monetary Fund says that the rescue plan will not necessarily accelerate the pace of stabilisation. The state is firm on its rescue plan because its wants to assure itself that investments from China, Japan and other rich nations will not stop. Together they account for $1.3 trillion of its debt. A small step backward on the part of global investors in USA will aggravate the situation. The US will face a huge credit crunch and its effects will be felt all over the world.

Presently, the US dollar is a currency accepted the world over. Most of the international transactions take place in US dollars. This is the standard the economic behemoth has set. However the crisis puts the status of US dollar at stake. Will it be replaced by another currency like the Euro? If this were to happen, it will badly damage the image of US. The loss of faith in US is already hurting markets the world over. The bailout plan will further increase the fiscal deficit of the nation. However, the rescue plan is not worth adhering to since it is not going to deliver. It is just going to provide temporary relief to banks. Let’s see how the market responds when the money actually flows into the system.