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So the gov't "injected" $50 billion in liquidity into the markets this morning, and then did an $85 billion bailout in the afternoon...
Does that mean the dollar took a $135 billion dollar hit on it's value in a single day?
Yes, because we have a $9 trillion debt and even our annual budget has a $400 billion deficit. Basically we are broke.
Our debt-GDP ratio is still not high enough to affect our credit rating yet but at our current trends in a few years we will get there and that will be devastating.
So the gov't "injected" $50 billion in liquidity into the markets this morning...
Yes, but $78 billion worth of loans matured today and were paid back to the gov't, so net liquidity in the banking system actually decreased to the tune of $28 billion. Whenever you hear these "liquidity injections" brought up, the amount maturing never seems to be mentioned, for some reason.
The $85 billion isn't really a bailout. They aren't just handing over $85 billion, they will only loan it if necessary and at very high rates (850 points above libor). This is a deal that the FED will probably make money on at the end of the day.
The $85 billion isn't really a bailout. They aren't just handing over $85 billion, they will only loan it if necessary and at very high rates (850 points above libor). This is a deal that the FED will probably make money on at the end of the day.
I agree with Humanoid on this one... the Fed isn't giving away money... they're being a lender of last resort. In essence they are betting on making a higher return on their investment than what they are dishing out with treasuries (increasing government debt with a low 3% and getting a hefty over 4% in return - or whatever the deal they have is).
They are also "buying" the assets for pennies on the dollar to reduce exposure at the expense of shareholders. Essentially they are trying to shore up confidence for private investors to get back in (by essentially saying that the USA is willing to invest... so you should be fine investing in US too).
If the bet fails though and AIG defaults regardless... which is what everybody is afraid of, then yes... then the Fed would either default on those treasuries (unable to pay the 3%)... OR... have to print extra dollars deflating/debasing the currency (inflation) to get the debt paid off. At the moment, the Fed is hoping that their actions would restore confidence and get people/investors back into investing for growth (credit/liquidity).
At the bottom of the totem poll, this would only really happen once people are able to pay off their own debts (when things become more affordable)... and when jobs are stable, and housing defaults reside. So, this has to work from both sides. Investors willing to invest (lend/credit)... and debtors able to pay.
Fed is printing money. Money is not backed by gold since the 70s. Taxpayers can't handle spending liabilities by government. China and the rest of the world is now our national ATM bank and for now back our 9 trillion dollar debt...
So in truth, the US government is "loaning" corporate America money from foreign investors.
It isn't loan, it is a "seizure" of 79.9% of AIG assets. It is a liquidation of common shares, the destruction of dividends, and the end of "preferred" preferred shares.
American media are PC, thus instead of using the word "Seizure", they call it "Nationalizing". Six of one, half dozen of another...
The $85 billion isn't really a bailout. They aren't just handing over $85 billion, they will only loan it if necessary and at very high rates (850 points above libor). This is a deal that the FED will probably make money on at the end of the day.
sure
they pull this crap with every bailout and throw good money after bad or just print more up
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