LinkedIn's reid Hoffmann asks "What are the best ways to enable grassroots stimulus, esp. with entrepreneurship?"

The most efficient way to stimulate grassroots entrepreneurship is to increase the availability of small sources of funding, Funding of $10,000, $25,000, $75,000, with a max of $100,000. These amounts are too small for angels and VCs, but in this economy, they are way too big for friends and families, banks are not lending any more, and credit cards are shutting down credit limits arbitrarily.
These seed funding amounts are essential for a start-up to explore the concept's viability and build something significant enough to attract regular investors &/or customers. I consult to start-ups and I have come across many companies for which an investment of this size would make the difference between launching a new product or not.
Existing SMBs also need access to loans of this size to stay in business, especially when their credit lines have been reduced overnight.
$1 billion would provide 40,000 seed investments of $25,000. How many of these billions have we already plunked down businesses that will never recover?
The money could be an investment in exchange for stock or loans.
It is critical that these be made available to start-ups and that it happens soon.

In response to the question about whether this should be government-funded?

That's a good question. I think these mini-loans and mini-investments should be profitable, with a risk-return profile somewhere between a VC fund and a decent commercial bank. So, these should be attractive to regular investors in the for-profit world. It might start with a special bank or investment fund focused on this size of mini-investments,similar to the specialization of micro-lending banks. Once the model is successfully established, regular commercial banks would adopt these investments as part of their lending portfolio. Same with mini-funds, smaller than the current angel funds.
The economic situation today is exceptional and might indeed call for exceptional steps. In this respect, if the government is stimulating construction, education, health care, clean tech, etc, then, yes, why not also stimulate start-ups and SMEs? I am advocating making these funds available to existing SMEs AND new start-ups.

How to allocate funds between start-ups and SMEs?
That's a critical question, too. I'd say they both have to be judged on their business merits. We are in a much higher risk phase for all businesses (the beta of the entire economy is up), but we still have no better tool to evaluate business decisions than the traditional toolset of ROI, NPVs etc. If I were investing stimulus money, I'd focus on the business risk and separate out the systemic risk - unlike a private investor, who'd be reluctant to separate the systemic risk.
When start-ups compete with existings SMEs, SMEs have a clear advantage: they don't need to prove they could become reality: they already are. Again, if I were investing stimulus money, existing companies would have a leg up, and rightly so, because it's easier to keep existing jobs alive than to bet on the creation of future jobs. So, maybe I'd allocate 20% to 25% to start-up funds and the rest to SMEs. If the start-ups survive 15 months, then they can apply again as an SME.