How the stock market works...

[xelasnave]

I can not figure it out... the USA has trillions on tick so where is the bailout money coming from... oh the banks will fund it maybe..er but they have cash problems...cant help but feel something seems off here.

Also our surplus seems ready to disappear in handouts which is good because the money gets moving but what surprised me was a couple of handouts sees it near used up...

So many things are effected ..I hear some University is millions down for funding because they got stung by Leemans ? bank, and that is the case for many Municipal Councils ...

I have advised investors in my previous lives and it would go this way..safe is ... cash in bank or government bonds, or a mortgage they are safe as houses (I ran a small mortgage practice and never never had one go belly up) but now who thinks a mortage is a good security..they are now very dubioous thanks to the evil practice of on selling parcels of loans to goodness knows who... so this strikes at the heart of our finance system ...hard to lend when the best security available has fallen into such disrepute.


alex

[Miaplacidus (Brian)]

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

[casstony]

When Obama is elected, I'm hoping he'll unveil economic policies that offer a return ticket to the event horizon rather than the one way deal we've got at the moment. Apparently Barack has been hanging out with an ex Fed chairman with different ideas to Bernanke.