Someone Who Understands the Economy ... Why Won't This 'Bailout' Create Massive Inflation?

[Blackhatjack]

Added to the billions already infused by the Fed prior to this 'bailout' we are looking at $1.5 Trillion added, right?

Why won't this create massive inflation, and devaluation of the dollar? THanks.

[ShortnFiery]

1. And why does it have to be done "right now" somewhat like The Patriot Act hard sell?

[lligrd]

2. And Why Aren't Those Responsible Being Investigated

including Paulson?

[TomClash]

3. They are

Watch for indictments in NY in the next year.

[lligrd]

6. A Few Are But Paulson Isn't

(as far as I know)and those at the very top most certainly won't be.

[defendandprotect]

10. Nor Greenspan ... nor FED ---

[TomClash]

11. No

And none of the real culprits are going to be regulated.

The bill is necessary but the hedge funds and pe funds are not being regulated - that's where the money went.

[defendandprotect]

22. As we're saying ... bail out after bail out -- where's remedy - where's re-REGULATION?

[TomClash]

25. Absolutely right

If you don't regulate all significant financial transactions, it is a waste of time and an enormous amount of money.

[anigbrowl]

31. Paulson really didn't create these conditions, and has got something of a bad rap

I have rather more respect for him than most DUers - he was a merit rather than a partisan appointment.

[defendandprotect]

32. Paulson has $700 million in Goldmam S... is he working for common good --

or elites ...???

What's your guess??

[BlooInBloo]

20. And why did my steak come out medium, rather than medium rare???

Those BASTARDS!!!!

[Pale Blue Dot]

4. It probably will.

Which is why this is at best a $700B temporary solution that will end up making things much, much worse.

[Indiana_Dem]

5. It will. It's either hyperinflation or deflation either way we go. nt

[FreakinDJ]

7. Trickle Down Economics solution to Inflation........Unemployment

That is how the Theory reads - I can't make up shit this good

[Zynx]

8. The Fed money is mostly temporary. M2 money supply hasn't been growing that fast.

What this probably will do is slightly weaken the dollar and result in higher import prices. It won't result in massive inflation though. We aren't really pumping $700 billion into the economy. It's more along the lines of shifting where that $700 billion is. We aren't going to stimulate the economy very much. This will not result in particularly much economic growth, but it will prevent a total collapse in activity.

[Blackhatjack]

14. I understand it will be parceled out $50-100 bil at a time, but tell me this...

Anytime there is an addition to the money supply it has to devalue the dollar, right? And in order to convince others to invest with interest paid in dollars you would have to increase that return to make up for the devaluation, thus leading to inflation, right?

So back to the original question, why won't it be part of a move toward massive inflation?

[Blackhatjack]

9. Paulson admitted this may not work, but he believes it will ... why?

Surely someone as knowledgeable as he is can tell us if this 'bailout plan' will work.

My followup question to Paulson would be "If this does not work, what will the situation look like?"

[defendandprotect]

15. Good question 'cause it's never worked before --- nationalize banks

not bail out --

and let's also end 500 years of capitalistic BS

---

Capitalism was created by VATICAN to run their Papal states --

Capitalism succeded Feudalism ---

[Jeff In Milwaukee]

23. You know why God created economists?

To make astrologers look good.

Any number of things can cause inflation, and any number of things can keep inflation in check. Right now we're in a recession (or will be by the time I finish typing this post). When demand for just about everything goes down, it tends to keep inflation under control. So right now might be the perfect moment to do something really inflationary (like borrow a trillion dollars) without causing a spike in inflation.

On the other hand, we might see double digit inflation by the end of the year, in which case, I'll deny under oath that I ever typed any of this.

[Kdillard]

12. I thought this was being doing I believe with only 250 billion dollars upfront

not 700 billion dollars. They seem to be moving very cautiously with this plan.

[applegrove]

13. the fact that so many are unemployed or underemployed...as well as house

prices fallin will help fight inflation a bit. Sad to say but looks like the stock market may bounce around happily after this deal while on Main Street people bleed.

You are right though - there has been inflation (gas prices, food prices) in the current economy. So we have to be careful.

[defendandprotect]

21. The deal on houses seems to have been purposeful add-on ,,,

Ameriquest and others were let prey on public --

organized crime by thugs --

and see this on the dollar ...


http://www.brasschecktv.com/page/433.html

[yy4me]

16. Please also explain to me the provision that the govt. require

equity stakes allowing taxpayers to profit. This is pure baloney. Are they going to issue shares or something? Through our lifetimes, we will all pay for this huge example of incompetence.
Who are they kidding,"allowing the taxpayers to profit. This info was in an article on Huff Po.

This whole mess in an insult to every American. Bail-out or no, seems like no-one is holding the bag except those of us who just happened to live here. No connection at all to any of these institutions,. Crooked execs, bad business, big debt, we lose.

[FARAFIELD]

17. IT WONT CAUSE INFLATION

Just like HIgh Gas prices, pressures like these are ANTI-INFLATIONARY. THat seems counter intuative I know, but what keeps inflation down in the cases of High Gas Prices and this are the lack of discretionary spending, so companies become hyper sensitive to the lack of avaliable dollars in the market to buy products and keep adjusting in an effort to find the market for their products. Companies and products that cannot compete simply go kaput. ANyone that tells you its inflationary quite simply doesnt understand economics. Just imagine it this way as well. If the market (banks et al. ) were going to put 50b in the market tommorrow on their own, it would be the same thing as the fed putting 50b in, the Fed will adjust by not releasing money it normally would, or issuing the bonds (which control inflation). THe arguement why it wouldnt be deflationary are pretty self explanitory. Anyhoo, thats the ball game. Long story short, the fed will release 250b LESS into the market than it would have. SO there will be the SAME amount of money in the system.

[nebenaube]

27. wow...

I wish I could spin the BS like that. High gas prices are anti-inflationary pressures? Wow, and I thought it added to the cost of the food I eat as well as to the cost of distribution for every product I purchase. Damn, if you truly believe that I 'm wondering who grows your dope?

[Pale Blue Dot]

28. He must be right; he said it in all caps. nt

[GoesTo11]

18. It's not that massive.

We've had deficits on the same order ($500B) and they haven't been causing inflation. This $700B is not just cash spent. The idea is they use it to buy up iffy mortgages with a market value of at least close to $700B, then after things cool down in a couple of years sell them back to investors for around what they were bought for. Just not that big a deal to basically borrow money for a couple of years and pay it back.

On the other hand, given the size of the national debt overall ($10 Trillion), that will either keep sucking $500B in interest payments a year or get reduced by: very rapid growth of the economy (can't really count on that), substantial increase in taxes or cutting of spending (not politically palatable), default (banks won't let politicians do this), or inflate it away. Many governments in this kind of a fix have chosen that option.

[Youphemism]

19. Inflation was a given, with or without this bill. With it, *if* it works, it will be lower & shorter

There's no doubt that many jobs would be lost and that inflation would happen without this bill.



With the bill, we'll add to the national debt, devaluing the dollar, and wind up the inflation motor.

The hope is that things will turn around, and the government will making its money back. Even if that happens, the interest on a $700 billion loan will add to our debt some.

We've gotten ourselves into a minefield that's about to be hit by an airstrike. Any path out could blow up in our face, and standing still is not an option either.

[quaker bill]

24. Because

it will only partially replace the "wealth" lost over the last several months.

This does not mean that inflation or massive devaluation of the dollar will not happen. However, the cause of this, if it happens, already exists and is far larger than the bailout. The bailout is a stop gap measure, a mere asprin in the face of the cancer, that is dwarfed by the size of the actual problem.

Since Ronald Reagan took office, we, as a nation, have been "mining the resource". In short, we have been short changing the infrastructure, transferring borrowed wealth to the rich, and selling off the country wholesale to China, the middle east, Japan, and anyone else who would lend us a dime. As real assets worth foriegn investment have steadily become increasingly rare, our financial geniuses on Wall Street invented this latest version of "funny money". This funny money came in the form exotically bundled certificates with an abstract connection to your mortgage or rent payment.

In a real if abstract sense, having run out of factories and businesses to sell, they sold an interest in your house to foriegn bankers, to fund our massive trade imbalance and budget deficit. The money for our wars and massive defense industry had to come from somewhere and don't imagine for a moment that your taxes paid for this. We spend more money on militarism than all the rest of the countries on earth combined, and honestly, we are no where near productive enough to afford this. The only way we could come close to affording this was to to have a big garage sale, and your mortgage was on the table.

In 2004, Howard Dean stated that we could then accept change, or sooner or later have change thrust upon us in a way none of us will be comfortable with. This is just the first thrust, but don't be confused for a moment, more are on their way.

[harun]

26. What is causing inflation right now is the falling dollar, and the increase in national debt

Why they think this will help is based on the assumption that the bad debt will no longer be hurting the banking and investment firms. Another assumption is that a good portion of this debt won't be as bad as they think. That the housing market will improve and eventually these assets will be worth something again.

I don't think either of those are good assumptions to be making. Neither does Dennis Kucinich or Ron Paul.

[grantcart]

29. It could have an inflationary impact - that will be decided mostly on how

easy it is for them to sell the bonds to pay for it.

My suspicion is that they already have the buyers in Saudia Arabia and the Far East to buy most of it, that it is one of the selling points for Paulson to get people to pay for it.

If they don't have buyers for it they can finance it by expanding the money supply and that would be inflationary.

If however a system wide freeze on working capital happened then there would be massive business collapse and there would be deflation as product chased money - there would also be massive unemployment.

No one can answer the question on the strength of the dollar but the best guess is that it would strengthen the dollar because the dollar is not sold against some non worldly currency but sold against rubles or yen etc. The russian stock market dropped 50% of its value and closed two days this week - so as bad as it is here it is much worse elsewhere

thanks for your comment

[Blackhatjack]

30. So what are the 'triggers' for inflation, hyperinflation and deflation?

We are always moving in one or the other direction. So which way will this 'bailout' move the indicators?

[gravity]

33. Because recessions and credit crunches are deflationary

The slowing economy and credit crunch will offset the inflationary effects of this bill. Even if the economy was sound, 700 billion over a year or too isn't enough to cause massive inflation anyways.

The dollar could increase in value form this because it will strengthen the US economy as a whole.