It goes without saying that the current U.S. recession is a serious economic condition that requires extraordinary actions.

The Fed, via its new "tool box," the Treasury via tactical investments under the TARP, and the prospective, largest fiscal stimulus package in U.S. history all represent extraordinary measures.

But should the United States consider still another, extraordinary action? Namely, temporarily suspending the federal income tax?

Attacking the recession from both "sides"

Experienced investors know that one great divide in economics concerns those economists who emphasize supply side (top-down) factors and those who emphasize demand side (bottom-up) factors. Passing a federal income tax holiday would add supply-side stimulus to likely demand-side stimulus via a fiscal stimulus package in 2009.

However, economist Richard Felson told BloggingStocks Tuesday while a federal income tax holiday would be politically-attractive, particularly for U.S. Representatives and Senators up for re-election in 2010, he doesn't favor the approach.

First, the United States Congress should pass and the president of the United States should sign a rescue package for General Motors, Ford and Chrysler, post-haste.

If this was the "Roaring '90s" or even the "Fabulous '50s," an operational cessation by General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler, would hurt the U.S. economy. As investors know, however, we are not in the 1990s or the 1950s, but in a teetering economy, and an auto sector cessation would be devastating, driving the U.S. economy into a deeper and longer recession.

Second, the notion that only companies that "perform" in the free market should continue and that others, the underperformers, should fail, as an absolute rule, simply has not been the history of the United States economy. Moreover, dozens of companies receive billions of dollars in subsidies from the U.S. government, which is you, the taxpayer.

Need a few examples? Let's do what the late, great New York Governor Al Smith would do: Let's look at the record.

New York Times columnist and Nobel Prize-winning economist Paul Krugman underscores that those who are thinking in terms of a balanced federal budget now are doing a serious disservice to the economy, and, by extension, to the nation.

It's important for the U.S. Government to return to a balanced budget when the economy returns to health, but it is critically important for Congress to approve a large fiscal stimulus to help the U.S. economy recover from the current recession, he said.

Sees danger of vicious cycle

That's because doing so will help end what Krugman argues is a vicious cycle of contraction that's beginning to play itself out in the economy. Rising unemployment will lead to further reductions in consumer spending, which will lead to further business cutbacks in production and more job cuts, which will lead to further reductions in consumer spending, contracting the economy even more, and so on. It's a destructive cycle that has to be stopped, and fiscal stimulus is part of the healing: it will get momentum headed in the constructive direction.

For those who doubt the harm that prematurely trying to balance a budget can do to the U.S. economy, Krugman offered FDR's premature attempt to balance the budget in 1937: it almost destroyed the New Deal and the economic recovery taking place in the nation at that time.

Bonuses for a U.S. Government-rescued Wall Street should take on a 'slightly' leaner tone, according to a sampling of U.S. taxpayers by Bloomberg News. The taxpayers' judgment regarding how large the bonuses should be? Zip. Nothing. Nada. Niet.

Wall Street, which created many of the Frankenstein-like financial instruments that either distorted and/or hid loan risk, and also in some cases encouraged the issuing of problematic mortgage forms, is not justified in paying bonuses, and certainly should not award them following the government's massive $700 billion bail-out of the industry, a sampling of U.S. taxpayers indicated.

One U.S. resident, Ken Karlson, a 61-year-old Vietnam War veteran who lives in Illinois told Bloomberg News, "I may not understand everything, but I do understand common sense." He added, "the bailout money should not have been given to them in the first place."

Economist Richard Felson told BloggingStocks Tuesday acrimony from U.S. citizens is not outlandish or unreasonable given the facts to-date of the current financial crisis.

Congressional investigators repeatedly, verbally pummeled former U.S. Federal Reserve Chairman Alan Greenspan Thursday, for what lawmakers charged was a lack of oversight for a mortgage and housing market run amok - - a lapse they believe encouraged a subprime financing boom and collapse that led to the global financial crisis.

Greenspan, looking subdued but characteristically composed as he testified before the House Committee on Oversight and Government Reform, conceded that a flaw in his free-market ideology contributed to a "once-in-a-century credit tsunami," Bloomberg News reported Thursday.

Greenspan: mortgage risk was miss-priced

The flaw, Greenspan said, was the failure by banks and mortgage lenders to properly price risky mortgage assets, including subprime / Alt-A mortgages, The Washington Post reported Thursday. Further, Greenspan said he saw "no choice" but to force the financial firms that package mortgage loans to "retain a meaningful part of the securities they issue" - - thus mandating that if the loans go bad, they will lose money, as well.

Further, Greenspan said he was "partially" wrong in his opposition in recent years to the regulation of derivatives, Bloomberg News reported Thursday - - in stark contrast to his May 2005 speech opposing derivatives regulation.

Economist David H. Wang told BloggingStocks Thursday that the failure to regulate and review lending practices by banks and mortgage lenders was a bipartisan failure.

"Both political parties are responsible because neither Democrats nor Republicans, not just Republicans, cared about the quality of mortgages banks approved during the housing boom," Wang said. "It was like grade inflation in college where the professor gives 'C' grades to students whose work only deserves a 'D.' No one cared about the quality of the loans as long as they were sold and no longer on their balance sheet. In the future, loan originators must retain partial equity in the loan to make them accountable for mortgage defaults."

Just call the impact of the bank rescue package's cost a 'bad news, goods news' saga.

The bad news is this year's budget deficit, for Fiscal 2009, will reach unprecedented heights, in terms of total money borrowed.

The good news is the dollar's reserve currency status will lower the financing cost of the rescue package and related deficit spending to an interest rate of 4% - - or less - - on the additional debt, The New York Times reported Monday.

Further, the Congress could have chosen to offset at least a portion of the additional outlays by increasing taxes or trimming spending in other areas. However, given the contraction effects of the above two, Congress has chosen to let the U.S. budget deficit rise, at least for now, The Times reported.

U.S.: record, back-to-back budget deficits

The United States just posted a record $438 billion budget deficit (preliminary) for F2008, which ended September 30, according to Congressional Budget Office data. This year's deficit is likely to exceed $700 billion, so says economist David H. Wang. Is it wise to straight-line the new spending directly to the national debt via borrowing, in Wang's view? Indeed it is, he says.

What financial services/banking reforms and related measures should the new U.S. Congress consider when it convenes in January 2009?

How much time do you have?

Yes, without question, the Congress is going to have a full plate when its first 2009 session starts, and there is a sincere wish -- a really, really sincere wish -- that none of these items has to be addressed sooner. That's the hope, anyway. We'll see.

Task 1: Credit default swaps/derivatives regulation and reform

Simply, all credit default swaps/derivatives -- direct and those with counterparties based in the United States -- must be regulated by the U.S. government through the Securities and Exchange Commission, or by the creation of a new Derivatives Regulatory Commission.

Among other powers, this agency would establish capital requirements, list pricing data, and limit leverage ratios for all parties. Banks protected by the FDIC would be banned from owning or selling derivatives or swaps.

The global derivatives market was more then $530 trillion as of June 2008. Of this amount, credit default swaps -- it's really credit default insurance -- totaled more than $55 trillion, according to the International Swaps and Derivatives Association.

With unemployment rising and the signs of slowdown all around, is a second tax rebate or second stimulus check from Congress up ahead?

The U.S. economy continues to slow. More than 800,000 jobs have been lost since the slowdown began about a year ago, and many economists say the lay-offs are likely to continue or even increase.

Meanwhile, the world's major industrialized nations are striving to stabilize the global financial system and end a credit crunch that could further damage economies around the world.

Well, the answer to the question about a second stimulus check may very well rest on the answer to this one: Who are you voting for on Election Day, November 4?

Key factor: 2008 Election

Congressional Democrats, led by House Speaker Nancy Pelosi, D-California, have vowed to push for a second stimulus package totaling up to $150 billion to help jump-start the anemic U.S. economy, The San Francisco Chronicle reports.

Washington Post Business Columnist Steven Pearlstein does not 'hold it all in,' as they say, regarding who he thinks is most to blame for the financial crisis.

Pearlstein cites the ineptitude of Wall Street and the nation's financial regulators. The crisis would have occurred whether Lehman Brothers was saved or not, because bad debt had overwhelmed the global financial system. A government intervention was inevitable, essential, and an act of leadership, in Pearlstein's view.

Conversely, Wall Street's top executives have shown little leadership, if any, he said. Their silence and invisibility throughout the crisis "attests to their moral and political bankruptcy," Pearlstein said, a perfect match for the financial bankruptcy they caused for investors, creditors, and customers.

Further, Pearlstein is particularly angered by Wall Street's top executives unwillingness to commit to a plan to enable borrowers to refinance mortgages into government guaranteed mortgages set at 85% of current market value of the property, and at the executives' utter lack of comment before the cameras, particularly regarding credit lines to businesses.

Political & Economic Analysis: Columnist Pearlstein clearly lays the blame for the financial crisis at the feet of Wall Street's top officials. Still, the mortgage process -- and the failure of a substantial portion of the subprime/Alt-A mortgage market -- involved many players: bank executives/lenders, mortgage brokers, appraisers, securitization specialists, ratings agencies, and borrowers.

Think it's hard for the U.S. Congress to agree on a policy?

Try getting a policy passed by the European Union.

Strictly speaking, of course, the European Parliament (both chambers), not the EU, is akin to the Congress, but the 27-nation EU is proving to be almost as unwieldy as the EP.

The EU's decision to increase the guarantee on bank deposits to 50,000 euros or about $68,000 Tuesday represented the first common, or unified approach to the financial crisis, The New York Times reported Tuesday, despite incontrovertible data indicating that the credit crunch is restricting lending, both short- and long-term, and is slowing commerce.

EU stance: 'Every nation for himself'

Economist Richard Felson told BloggingStocks Tuesday the EU's lack of unified action highlights the limitations of Europe's supranational political system. "For those European nations using the euro, these nations are unified by a common central bank. But fiscal policy, in terms of a treasury department, remains at the nation-state level. That makes it much harder to coordinate a bank rescue, for example," Felson said.

That's the main reason the EU hasn't passed a rescue package similar in scope to the U.S. Congress', Felson said. "Europe's economy is just as large as the U.S.'s and it's likely to experience distressed/bad debt aftereffects almost as large as those in America. It requires a unified response, but thus far it's been 'every nation for himself.' It's very disappointing, from a governance standpoint."

Much has been written about the add-ons or 'pork' in the rescue package passed by the U.S. Congress and signed President Bush.

The add-ons, which increased the bill's projected cost by $130-$165 billion, depending on the analysis, have been viewed as another example of "special interest lobbying," "sneaky ways to get pet projects passed," "ripping off the taxpayer" and/or as simply un-American.

Well, the truth is, add-ons in the United States have taken place in every Congress since the nation was founded. Further, no one really knows who made the first legislative "deal," but to say that senators in ancient Rome or officials in Greece, did not trade votes for projects or patronage would be a stretch.

"Democracy is the worst system ...

Of course, it's much more ethical -- some would call it virtuous -- to propose a bill, then get a large majority to render a decision on the program/policy/law solely on its merits, driven by whether the bill is in the nation's interest.

And likewise, add-ons/pork can increase federal spending by substantial amounts, which makes it harder for the federal government -- or any government, for that matter -- to live within its means.

Falling stock market; massive credit market stress; bankers reluctant to lend; bank defaults; companies cutting back investment / plant expansions; large budget deficit; large trade deficit; falling currency; stagnant economy; rising unemployment; high cost of food, energy; and a large portion of the public stating that the nation is on the wrong track, economically.

If you think the U.S. economy is presently mimicking that of a third-world country in the 1970s, you're right.

The United States, after nearly a decade of policy errors and business / consumer mistakes, is in its worst condition economically since the stagflation-plagued 1970s, but with credit market problems that dwarf that era's financing challenges.

In a time like this, when new, negative data points occur almost daily, it's difficult to pinpoint when the turning point will occur. But one may occur in as little as four weeks. Are there economists out there who are doubling as soothsayers? No, it's merely the U.S. Presidential and Congressional election, so says economist Richard Felson.

The first order of the day is financial market stabilization. If the U.S. House of Representatives goes along with the U.S. Senate and approves the rescue bill, that's step one toward financial market stability, Felson said. Add ons / companion public programs will further bolster lender and corporate confidence that the credit markets are not going to go the way of the Edsel, he said.

Financial Times columnist Martin Wolf inquires, do Americans understand their financial and economic system?

Anger at Wall Street's - - and regulators' - - lapses is justified, but at the end of the day to oppose the rescue package is at once self-defeating, contradictory, self-punitive, and borders on nihilism, Wolf states. Take your pick regarding which is the most damaging.

Congressional representatives, particularly conservative Republicans, but also others, opposed the flawed rescue plan as a bailout for the rich, and as a statement against 'socialism.' Socialism? Yes, the plan is flawed, Wolf states, but the ruin that will result from rejecting the plan will destroy the legitimacy not of socialism, but of the market economy. Exactly what are the packages' opponents fighting?

The Congressmen/women also say that they are 'taking a stand for Main Street and against Wall Street.' A contradiction, Wolf writes. Wolf: Wall Street and Main Street are streets that meet. That is what streets do.

Then there is the future. What is the opponents' alternative? The loudest voice here appears to be 'let the market sort things out by itself,' under the assumption that the damage, costs, and negative consequences really won't be that bad. Wolf: This is not prudent, if the early 20th century's experiences are a guide.

A problem that originated in the New World is re-exposing some long-standing nuanced opinions in the Old World.

France and Germany disagreed over how to prevent the global credit crunch from further hurting European banks. Germany, Europe's largest economy, does not want to set up a bailout / rescue fund that France is seeking. Luxembourg Prime Minister Jean-Claude Junker said the fund, which France argued should be as large as 300 billion euros or about $415 billion, isn't needed.

Economist Richard Felson said the United Kingdom also is against the idea, with Britain arguing that an ad hoc intervention policy would be sufficient for now. "A lot will depend on how the U.S. rescue package, provide it passes the U.S. House, performs in lowering overnight interest rates and restoring confidence," Felson said. "There's the sense in the U.K. that while the crisis extends beyond America's borders, the bulk of the bad-asset fallout will still be U.S.-based."

The U.S. Senate passed a revised rescue package, 74-25, Wednesday night and the U.S. House is expected to vote on the measure as soon as Friday.

However, the measure had little impact on overnight interest rates, at least initially. The London Interbank Overnight Rate, or LIBOR, rose for a fourth day, up 6 basis points to 4.21% Wednesday night, as banks continued to hoard cash.

AT&T Chairman / CEO Randall Stephenson said Tuesday that his company was unable to sell any commercial paper last week for terms longer than overnight.

"Your ability to plan for investment is obviously affected. You kind of don't know what your cost of capital six months from now is going to be," Stephenson told The AP. "We'll just be very guarded, cautious in terms of where we invest, very guarded and cautious in terms of hiring and capital spending. We'll see where this situation goes."

Economist David H. Wang told BloggingStocks Wednesday AT&T's (NYSE: T) challenges selling commercial paper underscore the nature of the financial crisis and the need for lawmakers / policy makers in Washington to act, "with all deliberate speed."

"When a cash-rich giant like AT&T, the corporate equivalent of an 850 Tri-merged FICO score, has trouble selling commercial paper longer than overnight, a bell should go off in your head," Wang said, adding that he does not own shares of any telecom company.