I am not an economist. I do not pretend to know exactly how we've gotten into the situation we're in economically. I don't know if a disastrous depression is avoidable, or if avoiding it would be right in the long run. Even the supposed experts seem pretty stumped right now. But that isn't going to stop me from commenting from my perspective - that of a pastor.
Debt is the basic problem. Our economy is a credit economy to such a degree that everyone, at every level, functions continually by manipulation of debt. Debt, in fact, is practically the real currency of the land. Debt itself is what banks trade back and forth with one another, regarding interest accruing loans themselves as assets, even though all such money is speculative - it depends on the ability to actually collect it. For a long time our faith in the basic engine of this system, consumer spending, has kept us multiplying and accruing debts assuming that all of them were of value, because they would eventually be paid. What has become clear is that the debt has grown to such a volume that it is really impossible to collect. Panicked lenders have foreclosed like mad, hoping to scrape some tiny fraction of the supposed value of those debts out of the wreckage.
The scale and intricacy of this credit system is novel, but the basic problem is not new at all. The ancients knew everything we do about burdensome debt. It has been the practice of the elite in every society to maintain power partly through leveraging debts on the lower classes. Whether this was in the form of latifundialization as in Israel, or the enclosure system in industrial England, or our own credit economy, the effects are similar. At some point all such systems become imbalanced by a preponderance of debt resulting in social and economic crisis.
To counteract the injustices which occur when one group of human beings is excessively indebted to another, the Torah prescribes Jubilee. In every 49th (or 50th year depending how you read it), all debts were to be forgiven and all property held as collateral to be restored to its original owner. The effect of this is to completely wipe the slate clean every so often. Furthermore, Torah instructs us not to deny anyone any loans even the day before Jubilee begins.
Jubilee has almost certainly never been practiced as it is described. The effects of such an event would be radically egalitarian. Since the wealthy are not permitted to deny loans and the poor are automatically forgiven their debt, it amounts to redistributive justice on the largest possible scale. At some point, in practicing Jubilee, no one would be poor and no one would be wealthy. For all of these reasons people will say that it is impractical or even unfair (though it is really the definition of fairness), and one can easily see why it has never actually happened.
Imagine, though, if we decided to try and enact it in some form. Imagine if the government, for example, started by forgiving all student loans, all loans to the banks through the Federal Reserve, and instructed the banks to do likewise. Even if the banks were required only to forgive the highest interest loans to those with the lowest incomes - imagine the effect it would have on families. Declare a moratorium on all foreclosures, and a temporary period of penalty-free bankruptcy. Even if we set conditions on those bankruptcies (such as only families or individuals below a certain income level), how many people could we rescue from homelessness or total poverty? What if we did a host of other little things to help eradicate debt - such as set low maximum limits on credit card interest, or removed penalties for early repayment? What if we used money from these massive stimulus bills to set up a debt registry and allowed people to apply to receive grants specifically to pay down debt?
Of course, I'd love it if we would just declare an actual Jubilee and forgive all debts tomorrow. Wipe the slate clean. Yes there would be enormous consequences. It would mean the end of our credit economy as we know it. Citibank and Capital One and Bank of America and others would probably be destroyed. Some people would lose their jobs (but keep their homes and be debt free!). We'd have to pick up and figure out how to start again. Furthermore, it couldn't be completely accomplished unless it was worldwide, because our economy is global. So no one would really be able to say the final result of such a cataclysmic decision. But I have faith that it would lay the foundation for a better world, because Jubilee is about forgiveness.
Just think about it, what if everyone in the world forgave everyone else tomorrow?