I sure would like to take a couple economics courses. There is nothing like a world-wide financial meltdown to really get you interested in a subject like that. I have always enjoyed markets and business, but, recently it is just fascinating. Every time I turn around there is something else that perplexes me. I would really like to learn more to assist in figuring it all out.
Take this "bad bank" idea... So, the US government wants to take $1-2 TRILLION to fund a bank to hold all of the bad assets (mortgage backed securities and such). This will get those assets off of the current banks books and free them up to be clean, money lending institutions again. In a 5 second snippet this sounds great. But, where does this money come from? I know they would want to use the rest of the TARP money, but, that still leaves us looking for well in excess of a TRILLION dollars to fund the rest of it. Where would that come from? The only place I could see it coming from is the issuance of government debt. Thus the government would be called upon to buy this stuff and from that they would be MONETIZING DEBT.
There is only one time when that worked... WWII. (See my previous blog about how that would work in the current world situation "Party Like It's 1929") Unless we started or got engaged in a World War or implemented price controls like some 4th world despot-run country, we would rapidly increase the money supply. This would shove down the value of a dollar to lows we have never seen before. That would HAVE to force interest rates higher and any chance we ever had of a recovery would be out the window.
To make matters even worse... You could say to yourself at this point, "Hey! I will buy gold! That way I would be in a sweet spot when the US Dollar tanks (further than it has)!" Ummm... I don't think that would work out as well as you imagine. What currency would the world turn to instead? The Euro? Which is in the same boat and in for a possibly rockier ride than the dollar? The rubble (oops I mean ruble!) Ha ha ha! I'm not even going to bother explaining how many ways that wouldn't happen. The Yuan? Even with China's progress in their economy, they are far from being able to float a currency on the world market. This means that there is nowhere to go with your gold "investment."
In an effort to not have this be one giant negative posting... I do have to say, "Way to go Ford!" It was very nice to see a company doing what it should. Borrowing when they needed to and spending wisely. It was comforting to hear at least one company who is having a very hard time announce that they do not have any intention to get government bailout money.
Makes me want to go out and buy an F-250 Supercrew with the logn bed to support them! :)
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