Tuesday, September 30, 2008

The great U.S. bailout

The U.S. financial system is in trouble. Henry Paulson, the Treasury Secretary, is asking for US$700bil to bail out the troubled finance-related companies. The cost is roughly US$2000 per citizen. In a typical family of 5, that is about $10k per family of after-tax money. So why should the public support it? Why not let the fat cats on Wall Street pay for their own mess?

By tomorrow, Congress will be asked to vote again on the bill to release US$700bil. My guess is that the bill will eventually be passed because the entire population stands to lose even more in terms of jobs. The entire U.S. economy is at stake, not just Wall Street.

Assuming the bill is passed, what next? Well, that means the U.S. national debt will rise by about 10%. To pay this off, the government will have to reduce spending (hence, slowing down again of the economy), or print more currency (higher inflation). Both outcomes are undesirable. So I guess the U.S. will eventually take the middle ground of both. The problem will be transposed from Wall Street to Main Street U.S.A. The fat cats will be grinning once again from ear to ear.

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