I am no economist. So can someone help me out.
Apparently the US Govt will inject a trillion dollars into the economy.
Where did this money come from?
More importently what would have happened to this money if it was not used in this way ?
Does this mean the US Govt must increase taxes?
The money isn’t anywhere. It’s the same place where the money paying for the Iraq war is. It’s being borrowed from the future. Or printed. Take your pick.
Raising taxes is one option. Unfortunately, the American people have become so stupid that raising taxes is political suicide for almost anyone (a few blue-state legislators/governors may be able to). The chances are good that we will simply ignore it, and continue to pay a high interest rate and ever-increasing inflation. Ultimately, this will probably lead to economic catastrophe, but I will probably be dead by then, and I have no near relatives younger than I, so I’m reaching the point of no longer caring, since no one is listening to me anyway.
I’m listening to you. And you’re exactly right.
The government will come up with 1 trillion by printing it, thereby devaluing the current dollars, T-Bills and other government obligations in currently in circulation by a factor of [current ]/[current $ + $1 trillion]. A bit of simplification there, of course, but I’m trying to keep these posts short and snappy.
That will make people who hold that paper unhappy. Including you and me, since we hold some of it in the form of green pieces of paper with pictures of Dead Presidents on them in our wallets.
And nervous about whether they should buy similar paper again, when it comes up for sale. As it does all the time via Treasury auctions. And if you are on a system of fiat money (as we are) and your central bank loses it’s credibility as an inflation fighter, bad things happen.
Especially if you need to keep borrowing money continually as our government does, due to its out-of-control spending.
Ref: Weimar Germany
Ref: Zimbabwe
The Govt is going to sell Treasury Bills. Basically, these are IOUs with a fixed interest rate and maturation time. The Govt gets the cash from someone, and that person gets a T-Bill, which is basically just as good as cash. So if someone buys a 1 million dollar T-Bill, the Govt gets that 1 million bucks, and the buyer still has the equivalent of 1 million bucks. Now there is 1 million more dollars floating around.
It wouldn’t exist. T-Bills wouldn’t be sold, and that extra million wouldn’t have been created.
It means that it has to pay more money in interest, and eventually have to repay the loans. Doing so doesn’t necessarily require raising taxes, but taxes will be higher than they otherwise could have been without this bailout.
Can we just sell Hawaii to the UAE or something they seem to love islands.
The government is assuming a potential liability of a trillion dollars. In other words, if all the loans/ mortgages went completely down the toilet, it would take a trillion dolars to pay for it all. The problem is that all this debt is backed by mortgages, stocks, funds etc. which will see their value evaporate if a chain reaction of defaults takes place. The government, by being the guaranteer of last resort, is attempting to prevent this (or at least cushion the crash substantially) by pledging it’s own finances against the potential liability. This is possible because governments posses the unique sovereign power of raising funds through taxation, so as long as the government itself is solvent, it will presumably always be able to come up with the money. It’s hoped that “only” a few hundred billion will actually have to be coughed up as a result.
I’ll bite.
But not Hawaii, since there is lots of private property there.
But how about Federally owned lands?
Why not? Why not sell it to our own citizens, if we are concerned about the strategic/defense implications of giving it to foreigners? Which seems like a reasonable concern to have.
Why not sell off Federal assets (in this case, property owned by the US government) to it’s own citizens?
That way, the government gets to accelerate it’s own need for capital/consumption to pay for this mess while the purchaser defers potential consumption (or ‘stuff’ they might otherwise have bought with their capital) in exchange for an asset.
It’s basically what happened when the government needed its citizens to buy War Bonds during time of war. The citizens agree to defer their own consumption, take dollars out of circulation, and give it to the government in exchange for an ‘asset’. In this case the ‘asset’ is a bond or loan, which is the government’s promise to pay back the money with interest at some future date.
But since we rapidly seem to be losing our faith in the government’s ability to repay loans, why not ask them for hard assets instead? They’ve got plenty of them lying around. Land, military bases, helium reserves, airplanes and trucks, highways. Tons of stuff. Why not?
All of this being said, there’s a good chance that the U.S. government hasn’t lost a penny on this transaction. The problem with the mortgages in question is not that they’re all bad, but rather that the bad ones are so bundled up among the good ones that they can’t predict what percentage of them will be foreclosed on, which they usually can.
However, irrespective of whether the US profits or not, that trillion or so dollars will still be in the economy when it wasn’t before. So all of our money is now worth a little bit less.
These days, sacrifice for country, particularly in the way of consumption, is anathema. It has become an article of faith that anything that the government can possibly do with money could be done better by the individual, even though, oddly, the individual never actually chooses to do things like bail out AIG or rebuild a dam.
Selling off government owned assets, though, is a viable possibility, ISTM.
I think the Gubmint still owns the Presidio in San Francisco. There’s at least a few billion right there. Maybe more. In fact, I think they did try and put in on the market a few years back.
There’s some federal nice property on the coasts. Military bases, parks, BLM land and the like. Probably not Bremerton up in Seattle, since that feels pretty important for national security.
Portsmouth, Maine perhaps? Wasn’t that slated for closure anyway a few years back? You could probably even feather in a 5 to 10 year timeframe to wind down operations there before transfer of ownership, and I would bet people would still be interested.
How about an interstate highway? What did the Chicago Skyway go for? That was about $2 billion, wasn’t it? Can’t quite remember. But the Federal Government owns lots and lots and lots of highways. And airports.
How about government buildings in Washington? That’s primo real estate. And it would be a libertarian’s wet dream because you could simultaneously shut down Federal agencies like the DOE, Dept of Education, FDA and the like to reduce ongoing operating costs as well as gain the one-time value of the property.
The government has lots and lots and lots of assets it could sell. It’s asking AIG to do that exact thing (sell of its assets) in order to qualify for loans. Why don’t we as citizens ask the same thing of our government? They are essentially ‘borrowing’ the money from us when they print $1 trillion.
It might be a libertarian’s dream; it is not mine! Unused islands or military bases, no problem. You want to sell the Presidio for condo development or some such? I’m not thrilled about it, but I can live with it. You might even be able to talk me into selling off few acres from a national park or forest, although don’t count on it. But you are not getting rid of federal regulatory agencies; that’s how we got into this mess in the first place!
No highways, bridges, or airports either.
OK. Let’s take those off the list.
Presidio. Check.
Throw me a bone and give me every military base that was slated for closure a few years back, before Barbara Boxer (who represented Alameda NAS) suddenly became a champion of the military. Or was it Dellums who suddenly had a change of heart? I can’t quite remember. Give the buyers complete liability from any potential Superfund or brownfield liability concerns.
Check.
We’ll take the popular National Parks off the list, because that will never go through politically. I don’t even know what an ‘unpopular’ National Park is, so maybe we should forget about that for a while.
Let’s sell a concession, to whomever is interested, to compete with the US Postal Service for daily mail delivery. Work with me here and give me $10 billion for that. You might want to go state-by-state, or county-by-county and piece it together from small investors. We don’t even need to screen out foreign-owned companies for that, IMHO.
Still lots of highways left. And airports.
How about Fermilab outside Chicago? I think that budget is about $400 million per year or thereabouts and haven’t heard of anything important, scientific-wise, coming out of there in a good long while. Come to think of it, how about Hanford? Oak Ridge? Los Alamos? No, not Los Alamos. I have a soft spot in my heart for Los Alamos and would probably write my Congressman to stop that.
A lot of federally owned lands are not readily marketable for a variety of reasons. I’m sure a number of Russian oligarchs would readily line up to carve up personal dude ranches out of the federal land that is Yellowstone National Park, or fishing cottages in some of the lovely parks in Maine or Michigan, or exclusive island homes around various National Seashores. I think there might be some protests from the public, though. Same with wildlife preserves, National Forests, wilderness areas, scenic and wild rivers.
A lot of federal land is used for military purposes. Kind of need that, or at least some of that.
Other land is disproportionately nasty hot deserts and slot canyons and arroyos not too close to anything anyone would want to be close to, or craggy frozen glaciers and tundra.
Also, the assets being foreclosed upon can be sold, reducing the cost to the government even more.
This points to the problem I have with this deal: the greedy so-and-sos who made all those doubtful loans are getting bailed out, more or less; the mortgagers are still obliged to either pay up or lose their homes.
Why don’t we find out whether there is a market for it, or not? And we can screen out undesirable buyers if we want, can’t we?
We didn’t seem to have a problem selling our debt obligations to foreigners, which in theory should be the same thing. Unless of course we always planned on inflating our way out of it in the first place.
They will renegotiate the contracts. The home owners must stay in the homes and make payments for us to survive. If a lot make payments the fund will be taking in money and the cost will not be 700 billion. The 700 billion does not touch all the mortgages. there are many more than that.
Taxes are going up a lot. get ready for that.
My brother just sent me this.
Now admittedly, the thing I understood best from this article was that the author hadn’t mastered using the subjunctive, but as far as I could understand it, it seemed a good plan. It certainly made me realize that I do not have a future as an economist.
Actually, that $10 billion for the Post Office might be a little low. Doing a little browsing here and see that Deutsche Post’s market cap is about $20 billion. That’s a market that’s about what…4-5 times smaller than ours? So maybe you could pencil in $80 billion or so from that sale.
Also forgot about Amtrak. Let’s throw that in there.
Yellowstone is right out. So is ANWR, even if Palin is up for it. I already said, no national parks or forests.
Roger. I’ll work with you on that.
See anything else on my list above that you could part with? I still think there is plenty in the piggy bank to cover the $1 trillion.