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Injecting billions into wall street

B

brandonb

Diamond Member
http://money.cnn.com/2008/09/1...postversion=2008091609

Can someone please translate what effect this has for America? I assume it will artificially create a higher number on wall street, but looking at the big picture, what happens? Does it add to the debt? Create inflation? Will we implode in a year again resulting in more bailouts? All I know is they are adding $70 billion into wall street. $50 billion more than expected, thats a billion per state. What fall out will happen?
 
Increases the risk of inflation, IIRC.

Though the Fed learned it's lesson after 1929, contracting the money supply after the markets have been taking a major beating is the worst of all choices.
 
You're worried about $70 billion, where were you for the multiple Congressional "save the economy" bills throughout the year? The sum of those bills + bailouts is well over $1 trillion and that's just for the first 9 months of 2008.
 
Originally posted by: brandonb
http://money.cnn.com/2008/09/1...postversion=2008091609

Can someone please translate what effect this has for America? I assume it will artificially create a higher number on wall street, but looking at the big picture, what happens? Does it add to the debt? Create inflation? Will we implode in a year again resulting in more bailouts? All I know is they are adding $70 billion into wall street. $50 billion more than expected, thats a billion per state. What fall out will happen?
Click to expand...

It does 3 things.

1) Creates inflation (not increase of risk, its literal inflation) since we put a larger supply of money than existed before (by printing)

2) Increases the budget deficit since this is an unexpected expense

3) It allows write-offs of assets on the books that are worth now anywhere in between .05-10 CENTS on the dollar. If a firm has access to cash, it can liquidate the bad assets for pennies on the dollar and still have operational income to continue day to day activities.
 
I think this is just a liquidity move by the Fed, which they did earlier in the year also, to try and get the Fed Fund's rate back down to their target of 2%.

All of the hoop la you are seeing on tv now has more to do with solvency of giant Wall Street investment banks who have to raise new capital because most of their previous base has been wiped out.

The Subprime Primer: http://www.businesspundit.com/the-sub-prime-primer/ (45 frame cartoon explanation)

 
It gives the banks an extra line of credit from which to borrow allowing them to make loans/investments to try to get out from under their current negative positions.
 
It will get worse...

Just think of all the Loss writeoffs that will bring down tax receipts this fiscal year.



I mean, So far Im down about $7900 in realized losses in my cash account. And I stop lossed a couple of stocks and bought in at a lower point on my longs. This year will have some losses claimed and Ill have to hold these stocks for a while to minimize my gains tax next year or the year after.



The Only good news is i am probably not going to have to pay any additional taxes this year....
 
We need a President who is going to make the deficit and federal debt the #1 priority.

We need a balanced budget amendment and we need to start paying off our debt!

Otherwise, I will live to see the USA come to end. It will be owned by China.
 
Presently there is a huge liquidity crisis on Wall Street. And it's not just the feds pumping cash, most of the European central banks have done the same thing today. Its a triage effort to try to keep AIG, WaMu, etc. alive until they can solve their own problems.

Personally I'll take the risk of possibly more inflation versus a certain deep recession-which is pretty much what we are currently facing if AIG (the nation's largest insurer), WaMu, etc. fail.
 
Originally posted by: GTaudiophile
We need a President who is going to make the deficit and federal debt the #1 priority.

We need a balanced budget amendment and we need to start paying off our debt!

Otherwise, I will live to see the USA come to end. It will be owned by China.
Click to expand...

Americans had their chance.
 
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