The economic disruption of flooding massive federal money into the system will prolong the problem and make it worse. It is an inefficient allocation of resources. It is throwing good money after bad. It’s intended primary effect is to insulate bad managers from the consequences of their bad management and make sure that they all get paid. The rest of us will be doing the paying, especially with the inflation tax as the money we hold becomes ever more worthless. Its primary real effect is inflation. We are looking at Weimar.
how much is this maniputation?
it seems the irrational panic
(with the rational painic against Obama Taxes)
is being used as cover to do damage to the USA.
I mostly agree, but its hard to see what should be done. If the government does nothing, including staying out of the way of deposits and money market fund runs, you are looking at a deflationary panic that would make the 30's look like a picnic. All commerce wuold grind to a halt for a long time. People like myself who have saved would be effectively destitute.
One of the lessons from the 30s was that deliberate contraction of the money supply by essentially forcing deleverage and liquidation made things worse. It also prepared the way for later FDR policies that vastly increased the government's role in the economy forever.
So, it seems that something has to be done to minimize a dramatic credit contraction. Some of the things that have been proposed--like McCain's mortgage giveaway and bank bailout -- are just stupid and inflationary (Obama will do the same thing, only phrase it differently). Some are less bad--because the shareholders and even debtholders of the offending companies have been wiped out. Lehman's shareholders got nothing, and their bondholders got something like 8 or 9 cents on the dollar. Even AIG may not be as bad a deal for the taxpayer as it appears, because the loans are collateralized and bear high rates, and the government owns 80% of the company.
While on the one hand, I'd like to let it go because we'd be better off when the dust settles, on the other, I'd hope to control collateral damage.
Given the current cultural socialist leanings, the government will probably overdo it, so the short term damage control will lead to a huge long-term inflationary bias. I don't think its Weimar yet--not until the even more colossal promises in Social Security and Medicare start to come due, and the government has to dishonor the promises either by reneging on benefits it can't pay, or by inflating to pay them in nominal terms. Inflation is my longer term concern, but you won't get it during a worldwide deflationary credit collapse. You're right, though, in that the increased monetary base will provide tremendous inflationary fuel once the economy starts to recover, borrowing increases, and the money multiplier goes up.