12 February 2009

financial bail-outs just add to deflationary pressures

Ironically, the latest attempts to jump start the US credit markets are actually just adding to over-all deflationary pressures by increasing debt. Debt must be repaid, and leads to major economic contractions in downturns as we have seen in 2007 and 2008. All these efforts to create even more debt policy makers are just driving us towards an even deeper decline of asset valuations and an increase in the purchasing power of the dollar.

I guess the new US administration hasn’t heard about the Hippocratic oath.

In the new consumer-lending program, the Treasury provides $100 billion of
capital and the Fed uses that as a cushion against which it could make up to $1
trillion of three-year loans aimed at jump-starting markets and spurring
consumer lending.

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