Tuesday, March 11, 2008

Bailout, Part Deux

The Fed has been aggressively cutting interest rates to try and stabilize the entire housing/credit mess. Unfortunately, it hasn't worked because bond investors aren't buying long bonds (meaning interest rates stay high for mortgages).

Today we have Bailout 2.0
. The Fed is taking junk from the banks as collateral and giving out money .... $200 billion worth. Will this work? Many don't think so. But I don't think they're done yet.

Trust me. The Feds are not going to let the "credit crunch" take down the economy. But there is no free lunch. Every possible bailout scenario carries the same price: inflation. This is exactly why bond buyers aren't buying any long bonds. They know that eventually the same bonds will be lent at much higher interest rates when the Fed has to try and stop inflation.

And housing defaults continue apace.

So for the time being, farmers in the midwest are getting rich again as commodity prices go up, Arab sheiks are awash in dollars as oil goes up and I'm just waiting for disco to now come back too.

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