One of the common claims is that no one is going to starve if the bailout doesn't happen. That's probably true, but picture the following situation
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That's just it. I don't know. No one knows. I can envision a lot of scenarios, but I really have little basis to believe in one over another.
I can tell you what my gut feeling says. It says 20% employment for a period of about a year. Wealth in most financial institutions disappears. Deposits over the FDIC insured limits (which we WOULD have to bail out) would vanish. The only things with value are those you can use, i.e. hard assets.
We get out of it eventually because the economy doesn't STOP. Some people are still employed, and they need food and widgets to live. And eventually you build enough wealth and recover.
"But you've got some period of time where people are out of luck."
And how long/how bad is that period of time when "people are out of luck," when the vast mountain of debt the US financial system is floating on (and which these measures are rapidly increasing) actually comes unbearable, whether in inflation at the store, or in direct taxes? What about if foreign credit is pulled out of federal bonds because it becomes obvious it's NOT going to paid back? How much do people suffer if it's not worth it to bring products to market for people to buy, given the debasement?
The Great Depression lasted 16 years. Food for thought that sound money and making business responsible for itself is cheaper in the long run.
The only sensible way to limit the damage is not to BUY the damaged, it is: liquidate the junk investments. NOT to pay more for it than any private company will!
"And how long/how bad is that period of time when "people are out of luck," when the vast mountain of debt the US financial system is floating on (and which these measures are rapidly increasing) actually comes unbearable, whether in inflation at the store, or in direct taxes
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"But other questions which absolutely need to be answered are things like: why do these same bankers -- the same ones who screwed up last time -- need to be in charge of it this time? They blew their first $700 billion dollars. Why on earth should we go out of our way to trust them with $700 billon more
( ... )
"OK. So the government has leverage, which is good. But still, who are their borrowing the money from? Hopefully not these same banks they're lending it to. But then, who exactly?"
Foreign investors, i.e. those with trade surpluses. Scared investors. Treasury rates are still really low, so *someone* is interested in lending money to uncle sam.
"Maybe not, but based on the banks track records of the last fifteen years, the banks don't have the expertise to handle this kind of a thing either."
Yeah, I don't have a great response to this, other than the fact that they knew they were being greedy at the time, and now they have been reminded what can go wrong. This seems to happen in cycles, i.e. the S&L crisis, etc. They'll probably do a fine job for at least 15 years, until people forget. But, that isn't too bad. We should have sold most of the securities by then anyway.
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In other words, let's say we don't do the bailout.
Okay, so people lose jobs, companies fold, produce is hard to come by.
... and then what? How long is that for? How would we get out of it (even if slowly) without borrowing money?
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I can tell you what my gut feeling says. It says 20% employment for a period of about a year. Wealth in most financial institutions disappears. Deposits over the FDIC insured limits (which we WOULD have to bail out) would vanish. The only things with value are those you can use, i.e. hard assets.
We get out of it eventually because the economy doesn't STOP. Some people are still employed, and they need food and widgets to live. And eventually you build enough wealth and recover.
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So ...20% employment ... going along with that, what do you imagine might happen with the minimum wage?
Reducing it?
Keeping it as is and having lots of under-the-table jobs?
Vast increase in illegal immigrant workers?
(just asking because I think it's interesting and you seem to have a clue)
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I don't really see anything happening one way or another with the minimum wage in that scenario.
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And how long/how bad is that period of time when "people are out of luck," when the vast mountain of debt the US financial system is floating on (and which these measures are rapidly increasing) actually comes unbearable, whether in inflation at the store, or in direct taxes? What about if foreign credit is pulled out of federal bonds because it becomes obvious it's NOT going to paid back? How much do people suffer if it's not worth it to bring products to market for people to buy, given the debasement?
The Great Depression lasted 16 years. Food for thought that sound money and making business responsible for itself is cheaper in the long run.
The only sensible way to limit the damage is not to BUY the damaged, it is: liquidate the junk investments. NOT to pay more for it than any private company will!
Reply
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Foreign investors, i.e. those with trade surpluses. Scared investors. Treasury rates are still really low, so *someone* is interested in lending money to uncle sam.
"Maybe not, but based on the banks track records of the last fifteen years, the banks don't have the expertise to handle this kind of a thing either."
Yeah, I don't have a great response to this, other than the fact that they knew they were being greedy at the time, and now they have been reminded what can go wrong. This seems to happen in cycles, i.e. the S&L crisis, etc. They'll probably do a fine job for at least 15 years, until people forget. But, that isn't too bad. We should have sold most of the securities by then anyway.
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