The Bush administration is already forecasting that the federal deficit will hit a record $482 billion next year. Analysts say the bailout costs mean a $1 trillion annual deficit is not out of the question.Foreign investors buying Treasury bills is how the administration plans to pay for the bailout. If the world loses faith in the American government's ability to keep its head above water -- then what?
"When you try to print $1 trillion, that will kill your currency, lifting oil prices, which then in turn will not help the stock market," said Gary Kaltbaum, who runs the money management firm Kaltbaum and Associates in Orlando, Fla. "It is a vicious cycle, and we are seeing that right now."
Lacking specifics, many investors — especially foreigners — sold U.S. dollars on worries that paying for the plan would increase the federal deficit and exacerbate inflation.
Tuesday, September 23, 2008
This is it
Wall Street has reverted to panic mode. Here's the most troubling part of the story:
Subscribe to:
Post Comments (Atom)
4 comments:
it seems that foreign investors aren't that keen anymore to invest (see the charts for 2008).
and inflation weimar style just over the horizon?
-> Has already been rejected by most European memberstates
The problem is dependence on foreign capital. How does becoming more dependent help that?
Seriously, Fannie became a problem when China stopped rolling its debt over. This is on a straight crash trajectory. Whats astonishing is that something so simple, and obvious, is taking so many people by surprise. The assumption seems to be that the US doesnt have to live by the normal rules of economics, like spending no more than you make. And there are good reasons why that used no to be true. Super power status for example. Reserve currency status etc.
However, it seems there are limits to how abusive an economic relationship can be. The rest of the world has had enough for now. So the question you have to ask yourself is, where in the current plan is the sacrifice? Who is going to pay for it, and how much? No sacrifice, no solution!
Harry
We already have an excellent solution in place -- Chapter 11 Bankruptcy.
In Chapter 11, companies with a solid underlying business generally swap debt for equity: the old equity holders are wiped out and the old debt claims are transformed into equity claims [I’m not a lawyer, but I assume this to mean “the value of a piece of property over and above any liabilities relating to it.] in the new entity which continues operating with a new capital structure. Alternatively, the debt holders can agree to cut down the face value of debt, in exchange for some warrants [Again, I assume: “a document authorizing a stockholder to buy shares from a company at a later date and at a specific price.”]
Luigi Zingales and Robert C. Mc Cormack the authors of the above quote [PDF file at:
http://faculty.chicagogsb.edu/luigi.zingales/Why_Paulson_is_wrong.pdf ]
maintain the process would have to be faster than chapter 11 normally takes. But passing a law, especially one of the magnitude normally requires much more investigation and vetting. If we can entertain passing a law of this magnitude this quickly, isn’t there a possibility that an expedited Chapter 11 program could be created. [Or just freeze the pile of it until we get around to sorting through it. Call a bank holiday, sort out the wheat from the chaff in the state and federal chartered banks we need to function, reopen them, and prioritize the sorting that needs to be done. I’m quite confident there would be extensive evidence of major criminal wrongdoing in the chaff as well – one major reason the slime are trying to rush this through.]
The above, sans my comment in brackets is just a portion of a post I recommend:
http://activerain.com/blogsview/703136/Not-a-Dime-Stop
which also includes:
“I've called my senators offices and I was asked to organize people in a calling campaign. They want to hear what we have to say.” And
“But after reading the proposal, please call and email your senator, NOT JUST ONCE, BUT A COUPLE OF TIMES A DAY, for all of this week.
Ask them to block or filibuster any bailout legislation. Ask them to vote no. Tell them you don't want to pay for a bailout.”
Has a link to text of ex-CEO of Goldman Sucks, Hank Paulson’s plan and a link to contact information to your Senator’s office too.
Luigi Zingales and Robert C. Mc Cormack the authors of the above quote maintain the process would have to be faster than chapter 11 normally takes. But passing a law, especially one of the magnitude normally requires much more investigation and vetting. If we can entertain passing a law of this magnitude this quickly, isn’t there a possibility that an expedited Chapter 11 program could be created.
Post a Comment