After the Bail-Out

Frankly although I feel that the bail-out will ultimately be a good thing, a necessary thing that had to be done, my view is that it will take sometime to make any substantive difference.  There perhaps may have been an alternative way to go – to use those funds to support – directly support the Banks – by re capitalising them.

Although the idea of bailing out Private companies – is probably an anathema to most Americans – but aside from the financial aide to Wall Street that one hopes will be repaid one day – the real reason for this is about very straight forward strategy – (1) Its about confidence in American Business (2) It to lessen the slide in a severe recession, which if it had happened may have spiraled into a full blown depression.  If that happens the financial world as we know it will cease – business will slow down, capital will drain away and huge numbers of people world wide will be without a job.

Something else that should be happening now is rewriting the laws that run business, as business is obviously incapable of self regulation and control, we need to impose these controls – I wonder at the end of the day what controls will be instituted, after a bit of time – lobbying from the Financial Industry and as we know politicians have very short memories – perhaps the repeal of the repeal  of the Glass Steagal Act? – increases in the bank reserves, I know that it would be difficult to repeal fractional banking – but perhaps we can reduce the multiplier – so that the banks had more cash reserves – cash!

To me this whole process of the bail-out has ended up buying time – that is all – its like the Hans Brinker – the fictional boy who save his home and town by keeping his finger in the dike – when questioned he said ‘I am keeping the water from running out,’ was the simple answer of the little hero. ‘Tell them to come quick.’ – but this is indeed fiction – written by a American author Mary Elizabeth Mapes Dodge (1831-1905).

The US Federal Government and Government throughout the world have embarked upon a strategy of increasing the liquidity in their markets – however it hasn’t really been the Golden fix – because banks are very reticent to loan money to other banks – let alone corporate clients – the people who have money do not have the confidence to lend money as they are worried where these terrible CDO’s will turn up – so really the problem is one of perception of insolvency – unfortunately it is now effecting business world wide. 

Without cash to fund cash flow and normal business ventures – corporations (except for the Oil companies in the short term especially Exxon) will contract, capital will leech away and growth will slow and depending upon when the confidence starts to rebuild (I think we have bottomed out in the crisis – but not as yet in the flow on effects of it) – we could hit a severe recession in the USA – this will have worldwide effects.

China needs to export to the USA – with worldwide demand slackening orders placed on China will fall significantly  – however they cannot stop as America now needs the Chinese Industrial complex for basic items as it  has shutdown so much of its capacity in areas that were directly competitive with Chinese products – it would take the will, time and perhaps some Tariff protection to restart them – then we come back to the issue to start new enterprises we need money – who would provide this?

With a downturn in exports – the Chinese USD$ reserves would fall quickly – this would motivate the Chinese government to source commodities in the country, therefore not using their USD$ reserves.  I have been told by people in the know that this is now in action.

With a downturn in worldwide sales from China – what would happen then – China would dramatically reduce its need for commodities on the worldwide market – Ouch!! that hurts

Australia

Is having it own problems – the Insolvency perception is working here as well – however with the Prudential controls that are on our banks I cannot foresee a similar bank failure unless these problems are being kept out of site, or off the books.

CEO and chief apologist for the Australian Banks has been announced it is Mr. Wayne Swan the Australian Treasurer – who is saying he won’t force the banks to pass on any full flow of effects of a Reserve Bank interest reduction – does he know how much these banks are making in profits ?  and on the other hand how Australian families are suffering – a 1/2% reduction would be a big help, they might eat properly again – think about it – you are supposed to care about the battlers – remember.

Also this 4 Billion dollar buy back (Sydney Morning Herald Reports) of Australian AAA Mortgages – the current market for these securities in Australia is in excess of A$50 Billion dollars – what will $4 Billion do ? perhaps buy morning tea? It is a blatant political move to give the perception that they are being Pro-Active – the first tender for these purchases is slanted for December – and the next a date to be announced next year, I am astounded that it is so little money and and that it is taking so long to actually get to the market – the only good thing about this manipulation is that it does show the potential for support if the Financial markets in Australia further deteriorate

Mr. Rudd – Swan is in over his head – find somebody that (1) knows something about finance (2) knows what he is doing – this would be a great start (3) Projects some confidence – how about somebody of the calibre of Malcolm Turnbull.  The Labor party has always had the perception of being poor economic managers – try and break the mould, also Mr. Rudd, how about staying home and look after Australia.

Tags:

Advertisements
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: