Are you sure you should be doing that?

Wednesday, October 22, 2008

Throw the grenade, or put it in your pocket?

I was educated in the wrong things. Karl Denninger explains - in a way I struggle to understand fully - how the US government's schemes to support the banks must ultimately be financed by Treasury bonds on such a scale as to seriously damage their credit rating and pump up interest rates to a ruinous level.

This is a consequence of avoiding taking the right action, i.e. finding out who's insolvent and letting them go bust. I still remember Henry Paulson's panicky look when Congress threw out the bailout bill the first time.

Once you've pulled the pin out of a grenade, you can throw it, or you can hang on to it. Madly, it looks as though the government is following the latter course, and hopes to be able to handle the consequences.

UPDATE

Relevant to the above is Wat's resume of public debt history in the UK since World War II, showing how important it is NOT to get into debt, to fight inflation and control the finances.

3 comments:

dearieme said...

Here's a suggestion of how to handle the problem.
http://www.financialsense.com/editorials/fekete/2008/1020.html

hatfield girl said...

'I was educated in the wrong things'

You were educated in the best of things, S.You treat as fitted shelves and painted walls what I struggle to even begin to master.

Sackerson said...

DM: yes, he's a gold bug, all right. Maybe we should move from considering what SHOULD happen to what is GOING to happen. I'm as guilty as anyone else of trying to design a better system, instead of playing the hand as it is, to the best of my ability.

HG: high praise - too high - from such a distinguished source. I feel like a donkey-brain most of the time.