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Hi Alex,
Good question.
If the US can get away with it, they will issue government bonds to the value of $1000,000,000,000 (or more) to finance the bail out. The only ones with cash to buy them are sovereign wealth funds (China, UAE, Russia). The problem there is that many of them have been burnt already, having already bought chunks of US banks that subsequently went belly up and/or got nationalized. (Note that the Chinese have just had their huge investment in Rio Tinto locked up by the liquidators of Lehman Bros.) So naturally they will be cautious buyers. Which means they will demand high yields/coupons/interest. In the end, that means the US government will have to print greenbacks. (If no one buys the bonds, then that's what they will have to do anyway in order to pay their own bills.) Inevitably, that must result in an ineluctable decline in the US dollar.
In two or three years I fully expect to be able to enjoy very cheap holidays to the US, where I will be able to pick up delightfully cheap televue eyepieces...
Like England 100 years ago, the baton of economic leadership is finally, and well and truly, passing away from the USA.
Have a nice day,
Brian
Last edited by Miaplacidus; 22-10-2008 at 10:24 PM.
Reason: needed to add more zeroes!
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