Saturday, October 4, 2008

How good is the Bail Out ?

On 10/03/2008, the $700 Billion bail out/rescue plan passed US Congress ( After the first attempt that failed a week earlier). The bail out probably passed since the issue at hand posed a double edged sword. The still open edge which is 'What has changed in average person's life?. Treasury buying the bad assets through tagging a price will help companies. While getting their books to some decent shape could have helped corporates goto 2001 level, the consumers are still stuck. With this, how can one expect a consumer based economy to change things unless some design has changed radically ?

From a global perspective, this is artificial inflation of the assets through additional pumping of fresh US dollars ( Thanks to non-public disclosure to M3 supply). This just means that dollar will go down in the long term and China and other Gulf nations get more opportunity to stack $700 billion more to their reserves. It will be interesting to see how the emerging markets behave for the next 4-5 months and their GDP levels with a distressed US. This will validate how the US's cold makes the the rest of the world to sneeze.