Quote:
Originally Posted by Jim Richards
I'm a bit confused...what's the difference between the Federal Reserve pumping $670 billion of "liquidity" into the market, and the $700 billion bailout plan (besides the obvious $30 billion)??? Where does the money come from in each case? What is the effect on the dollar, our debt, and on inflation?
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The $670 billion is technically "loans" -- sort of like if you, on a personal level, had run up a credit card to its limit and the credit card company increased your limit letting you borrow more.
The bailout package would involve the government
permanently removing selected debt off the balance sheets of financial institutions -- sort of like if you, on a personal level, had run a credit card to the limit, then the credit card company said, "Don't worry, you don't have to pay that money back anymore."
Both are inflationary actions; both work to destroy the value of the U.S. dollar. Neither eliminates any debt; the bailout moves the debt around; the "liquidity injection" puts the financial institutions deeper into debt, creating a situation -- if the
proper accounting is applied to the debt -- where the firms are in a worse financial position.
(In reality, few expect those receiving these "liquidity injections" to actually pay the debt back. The net result being price inflation in the economy -- we all pay for the action when our dollars buy less stuff.)
Edit: The money, in both instances, is created "out of thin air" -- the Fed simply increases their balance sheet. It is "madness" and the reason the economy is in a mess. Things get "crazy" when grown men think that they can create wealth "magically" by "creating more money."