Since most of you have been getting your information from clueless economists and tree-hugging hippies, I'll explain in very simple terms what this bailout means.
There are two neighbours, one of them is an expert lawn-mower and another a skilled gardener
Lets say,
A cost of 1 lawn mow = cost of 1 Gardening = $20.
(The $ figure doesn't really matter, you can put it at $1000)
In normal times,
The Lawn mower cuts his own lawn and his neighbors
and the gardener attends his own garden and his neighbor's. They pay each other $20 for the services (They can pretty much pay each other $1000 and it doesn't matter)
The GDP of these two houses is 2 Lawn Mows and 2 Gardening or 4 Lawn Mows
equivalent
Note GDP is always measured in real output items, like 4 Lawn Mows as opposed to money ($4000 or $80)
Now, there is suddenly a rumor that people have run out of money.
The Gardener being very skeptical of his neighbor will not perform any services because he thinks his neighbor has no money to pay
The Lawn mower thinks the same and he will not mow his neighbors lawn
What's the result? Assuming both will attend to their own garden and lawn, the GDP has plunged to 1 Lawn Mow and 1 Garden or 2 Lawn Mows i.e 50% reduction in GDP
What about unemployment? Since both are not performing services to the other, they are twiddling their thumbs for 50% of the time and the unemployment has dropped 50%
How can this be prevented?
If a third person (FED) comes and says, look I'll give both of you $20 (or even just say it), the confidence returns and both will operate at full capacity
This is exactly the reason, why US got out of the Gold standard. i.e it can print money whenever it chooses to. The $700B is really meaningless. It is the cost of printing paper
Now, Clueless Idiots will come and say, what is the value of the $? if you print too much money, won't it lose its value?.
As has been proven recently, clueless idiots think that only americans shit stink and the europeans and chinese and Indian shit are edible.
But, in reality everybody's shit stinks and the currency of the country whose shit stinks the least relatively appreciates and that country is the US of A
Goal of US Fed == Keep economy at its full capacity (i.e 4 Lawn Mows) even if it has to print money.
Europeans Goal == Keep inflation down (it doesn't matter if nobody mows their lawn, as long as the cost is $10)
Only the USA has got it right.
PS: US can always raise interest rates if it thinks people have too much money, a concept clueless idiots still don't understand



Reply With Quote



Bookmarks