How will the bailout affect the deficit? I was thinking that short term, it would depreciate the dollar, thus feeding the deficit. But, that effect would be rather immaterial and probably short-lived. If the gov’t actually profits from investing in the distressed assets, wouldn’t it decrease the deficit? I’m not trying to assign any sort of probability to that outcome, just trying to wrap my head around how these two pieces of the economy will interact. Thanks.
Does it depend on wether the government marks to market the ‘assets’ that it purchases?
The gov’t isn’t marking to market the assets it purchases anytime soon. Are they going to allocate $700B to buy stuff and then be able to flip it for a quick profit to someone else?
Once they have bought all the CDOs they should slash interest rates, print as much money as they can and force banks to stay within new maximum capital ratios. They’ll make a killing on the CDO’s.
“If the gov’t actually profits from investing in the distressed assets, wouldn’t it decrease the deficit”. I think what we have is a FOMC Chairman who has officially stated that he is going to de-base the currency. Willy