Originally posted by: senseamp
Originally posted by: LegendKiller
Originally posted by: senseamp
The cows are never coming back to the barn. Them staying in the barn was dependend on foreigners financing our deficits and out of control spending. Now, whether because of defaults or currency devaluation, financing our deficits will not be very attractive to foreigners. They will either lose their money due to defaults or currency devaluations, but it will be a loss none the less. If american borrowers/banks default, yes that is going to hurt big time, but it will clear the air of losses eventually, and we can move on. If we decide to take the easy way out and devalue our currency, next time these borrowers lend to us, they will insist on being paid back in their own currency. We will lose the major advantage we had over many years of having the world on the dollar standard and having the luxury of borrowing in our own currency and not worrying about currency risk when repaying loans. In the long term, that will make things a lot worse for the US.
So, the "hard way" is to keep the value of the currency, crush the credit markets and create runs on the vast majority of banks, creating a deflationary spiral and sinking us into a long-term recession or a depression?
Wow, I thought we had learned our lesson in 1929. I guess not.
Are you proposing we inflate our way out of this mess?
Hell, every time people borrow money and can't repay, let's just print some more money to cover the debts. Why even bother, let's all just get a corporate credit card from the Fed, so we can just send the bills directly to them. You are taking money (via inflation) from those who were responsible and did the right thing and giving it to those who created these problems for us and themselves. Noone forced banks to lend to losers, noone forced losers to borrow more than they could afford to pay. They made mistakes, now they want to socialize their problems. So when it's profits, it's their profits, but when it's problems, they are all of the sudden our problems.
If more banks collapse because they made bad loans, then they collapse. They are not too big to fail. If they are too big to fail, and the fed bails them out, they should be nationalized.
Yes, the Fed should own what's left of Bear Stearns, since the Fed is who is taking the risk.