... and scheduled for a vote in the House of Representatives today or tomorrow.
The strikes me as a horrendously bad idea and guaranteed to be inflationary. Bankers have been making loans to people whom they knew couldn't repay them for years and are now seemingly in shock that their businesses are in trouble. I recall a time when making bad business decisions meant your business would fail, that was a strong incentive to make the right choices.
As for the inflation side, they've just monetized $700bn of debt, essentially thrown the printing presses into overdrive. This will have a devaluing effect on the US dollar and will therefore drive prices up. At the same time cash strapped consumers will have more and more trouble making ends meet. This means more bankruptcies, more foreclosures and more bad debt that the banks will have to write down (or that the US gov't will have to monetize).
Now admittedly, a lot of this will happen whether they pass this or not, it's really all a matter of time. In the opinion of this author, I'd rather see it crash quickly so we can get over it quickly as opposed to stretching it out over years or decades (it will take a LONG time to repay $700bn in loans, even if the US balances its budget).
The other question is who will the US sell all this debt to? Until recently China has been covering most of the US debts. As of last week, however, the Chinese Central Bank has forbidden Chinese banks from lending to US banks. So who is going to pickup all this debt?
Now, for the Canadian perspective, Stephen Harper says that this isn't a problem for us, that our economy is fundamentally different. Well, he's right, we are fundamentally different. We have a resource based, energy based, export driven economy... with one primary customer. Let's remember that 80% of those exports go to the US. If they're not buying, it won't matter what our fundamentals are. Cover the US on a world map... Canada is as isolated as Australia.
On a final note, this is about where I think is what we ought to be doing right now...
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