What will Happen Without A Bailout
by RisingTide, Fri Oct 03, 2008 at 06:44:58 AM EDT
Let's just go ahead and get it over with. The bailout is the sort of nonsense that a wall street corporate guy does when he wants to save the world. Paulson looks like he's seen a ghost, and with good reason! Beg pardon, he ain't tryin to save the world, just hold the ship together with duct tape.
I'm sick to death of ten diaries against the bailout, though, so I figure, bein' the contrarian suits me fine. No, I won't go on record sayin' I like the durned thing. I just want to say what'll happen if we don't pay it. If we do pay it, we got to worries about China bein' pissed at our inflation. There are risks to being the world's reserve currency.
This isn't "The Great Depression" this will be "The Great Dislocation." Commericial paper is in dire straights right now, and the entire economy runs on it.
So what does this credit crisis mean? It means no paychecks. Most companies don't need to be paid immediately on jobs, because they use commercial paper to take out short term loans, in order to have the money that they know will be coming in. Hospitals don't need to wait for insurance companies. Colleges don't need to wait for the federal or state government to issue money. A supplier doesn't need to wait for its customers to have the money.
If commercial paper goes down, it is likely that most workplaces will not have the funding to pay you. Worse, it's likely that banks -- and by that I mean a lotta them -- will fail at at once, due to Credit Default Swaps (roughly speaking, a circular firing squad). So you might not have your credit cards, or access to a bank.
So there will be a period of time where money is scrambled around. An' that's bad. Consumer spending would tank, and even if everyone got paid later, there's still groceries to be bought.
But there would be bigger problems up ahead, if commercial paper doesn't get fixed. Imagine a company that has to keep 10% of it's capital in the bank, because that much is needed for payroll. That's 10% that can't be invested, can't be spent and then repaid in ten days. It means a slowdown. If you can't spend the money, you can't do as much as you might be able to otherwise.
This is what the bailout is intended to stave off. whether or not it will do so, is a matter of debate. But there's a reason why a lot of progressive economists are endorsing the stupid thing.