What is the immediate macro impact of bailout on 1. GDP - do these 700B$ pumped in economy classify for G component in GDP? 2. Inflation - does it increase the money supply? how? If financing is by sell of treasuries, money supply should not change and in turn inflation should stay unaffected at least in short run, isn’t it? 3. taxes - Again if all the financing is thru sell of treasuries, i guess taxes shud not impact immediately. 4. US$ - dollar is already getting hit. But I am trying to understand the underlying fundamentals. Can it be called as Keynesian discretionary intervention? It sounds like but I’m not so sure why … Just trying to understand how the bailout wil impact macro numbers …
My guess is: 1. no, but will help GDP if helps lending and ease credit 2. likely to increase inflation 3. has to be finaced somewhere, if not tax, then borrowing 4. inflation puts pressure on dollar
It seems fairly certain that this will increase inflation and decrease the value of the dollar. As raising taxes is so hard to institute this will be financed with foreign borrowing.
The thing is, when they [P & B Inc., - Paulson & Bernake Inc.,] start talking about seven hundred BILLION in bailouts, you can best believe that some [i.e. many] people on the wrong side are goind to want IN. Correct me if I’m wrong but don’t Morgan and Goldman want IN to this deal? Willy
I’ve been talking with some people I consider to be pretty smart, and each has said that the bailout is the worst possible scenario for the dollar. Look at the rally in commodities and gold in the last couple of days, and that’s just on the premise of the bailout, not the details. I bit the bullet and bought GLD today.
bought gold today, heh ? cramer pumped it too on his show. that makes me wary.
I agree golfmaniac. I do NOT believe this is a great idea for the greenback. Willy
golfmaniac Wrote: ------------------------------------------------------- > I’ve been talking with some people I consider to > be pretty smart, and each has said that the > bailout is the worst possible scenario for the > dollar. Look at the rally in commodities and gold > in the last couple of days, and that’s just on the > premise of the bailout, not the details. I bit > the bullet and bought GLD today. 1. No. 2. Doesn’t necessarily affect the money supply or inflation 3. Does not necessarily affect borrowing or taxes in the long-term. The cost of the plan is not $700bn; it’s cost is 0 +/- any gains/losses realised on the acquired assets. The most important issue here is whether the Treasury has the ability to pay the right price. 4. No, if the is falling it’s because the bailout plan is perceived as more likely to fail (fail, here, in the sense of not being approved). The reason being that people are trying to attach (pointless) provisos, thus getting in the way of consensus-building. For example, some are arguing that, if a bank sells “toxic” assets to the Treasury, then the Treasury should receive an equity stake in it, or should have a cap imposed on executive pay, or whatever… The plan is pro- (certainly in the short-term) because it removes systemic financial risk. The long-term impact on the hinges on whether this ends up costing them a lot or not, and whether you think it tells you something more about US gov’t policy. My 2c
I also thought it may not significantly impact money-supply and inflation in short run. What this scheme does is borrow money from the market and lend the same money back to troubled banks. If these assets are really worth what govt is paying for (and this could be debated), gov’t is acting as a passthru for money flow, removing the fear-clog that has frozen the credit system. That said, long term impact really hinges on the crucial factor how efficiently government handles this. Government and Efficiency? Now that’s the scariest part of this deal. Also I thought it might be slight -negative and GLD-positive in short run - simply because huge deficit will show up in the beginning once they start buying these assets. Many central banks use US as reserve currency and they mite look to diversify or switch to gold in panic.
"1. GDP - do these 700B$ pumped in economy classify for G component in GDP? " Isn’t the “G” for “Gross”? I thinbk there is widespread agreement that the bailout contributes all kinds of gross to the economy.
I like the plan. I don’t have to pay for it 
JoeyDVivre Wrote: ------------------------------------------------------- > "1. GDP - do these 700B$ pumped in economy > classify for G component in GDP? " > > Isn’t the “G” for “Gross”? I thinbk there is > widespread agreement that the bailout contributes > all kinds of gross to the economy. Post of the day, classic! LOL
JoeyDVivre Wrote: ------------------------------------------------------- > "1. GDP - do these 700B$ pumped in economy > classify for G component in GDP? " > > Isn’t the “G” for “Gross”? I thinbk there is > widespread agreement that the bailout contributes > all kinds of gross to the economy. Haha. Nice
JoeyDVivre Wrote: ------------------------------------------------------- > "1. GDP - do these 700B$ pumped in economy > classify for G component in GDP? " > > Isn’t the “G” for “Gross”? I thinbk there is > widespread agreement that the bailout contributes > all kinds of gross to the economy. Ha ha … good one… I meant G for governmental expenditure in ‘gdp = c+g+i+x’ equation.
JoeyDVivre Wrote: ------------------------------------------------------- > "1. GDP - do these 700B$ pumped in economy > classify for G component in GDP? " > > Isn’t the “G” for “Gross”? I thinbk there is > widespread agreement that the bailout contributes > all kinds of gross to the economy. Ha ha … good one… I meant G for governmental expenditure in ‘gdp = c+g+i+x’ equation.
Oh yeah…
WillyR Wrote: ------------------------------------------------------- > I agree golfmaniac. I do NOT believe this is a > great idea for the greenback. > > Willy Heh, that’s exactly what they said in 1929. “Screw the economy, protect the dollar!” What good is having a “strong” dollar if you have no dollars to spend? I am bearish on gold in the long term.