Monday, September 22, 2008

Back in the USSA!, Will the Bail Out Fix the Economy?

Congress is about to approve at least 700 Billion dollars in government spending to bail out the banks and investment houses. Rules were waived to allow Goldman and Morgan to change their status to Bank Holding companies and access 24/7 "emergency loans" from the fed within just 5 days rather than the normal 30.

Several thoughts come to mind immediately. First, the blatancy with which the feds have totally dispensed with the rule book tells me they are in absolute panic and the situation is far worse than they're letting on. Second, do you really think that once they give these ailing corporations a giant cash infusion, these banks are going to turn around and make that money available to the general public? They're going to pay off their strategic network partners so that after the whole house of cards comes falling down and it's time to rebuild, they'll be in good standing. Next, what does the federal government do when the airlines and the auto companies come looking for a hand out? How about the truckers and anyone else that is in dire straits right now or in the near future?

The feds are scrambling to rebuild a perception of normalcy, probably because if there is a run on deposits, there is no way the banks or the FDIC will be able to cover it. They've all borrowed against and committed money that doesn't exist and if things don't turn around, everyone is going to know it. If it get's bad, triple and quadruple digit inflation is not out of the question as the treasury starts printing money as fast as the machines can handle.

In the best case scenerio, the economy has a quick recovery and the federal government experiences a net loss of a couple of hundred billion dollars. Even that puts the "drop dead" date for dealing with things like social security and medicaid much closer than it was a few weeks ago.

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