The Federal Reserve announced Tuesday a radical plan to buy large amounts of short-term debts in a dramatic effort to unfreeze the credit markets.

Economic growth in the U.S. and the world is threatened as the world credit markets remain at a near standstill. The Federal Reserve will buy "commercial paper," a short-term financing mechanism on which many companies rely to finance their day-to-day operations, such as purchasing supplies or making payrolls.

The market for this crucial financing, which relies on investors rather than banks, has virtually dried up. That has made it increasingly difficult and expensive for companies to raise money to fund their operations. Commercial paper is a way of borrowing money for short periods, typically ranging from overnight to less than a week.

The notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash, the Fed said. The action makes the Fed a source of credit for nonfinancial businesses in addition to commercial banks and investment firms.