Okay, I won’t pretend to understand everything about this $700 billion bailout plan. But one question is very notably absent from most discussions – who will come up with the money and how? The standard answer is – US taxpayers – but that leaves a couple of minor details out of the picture. And when I say minor, of course, I mean major. Will the taxpayers actually line up in IRS (or whatever institution) offices to hand out wads of cash and collect the $700 billion? Or does the US government actually have the money in some reserve and it’s just waiting to be used? Or will the US government pile a mountain of debt, explode its deficit and destroy the value of the dollar once and for all? If it is the last one, how is that better than letting more banks go bust?
Disclaimer: the author of the above rant is not an economist and barely remembers Economics classes from like 6 years ago. He also lives very far away from USA and finds it weird that the political wranglings in a country on the other side of the globe affect him so greatly.
Edit: I actually talked with an economist. She basically said that I am an idiot, but it took her half an hour to say and she used long words.
Second edit (26 Sept 2008): Taken from a BBC article:
How will the US government finance the purchase?
The US government will borrow the money from world financial markets. The proposed legislation gives the Treasury the authority to issue an additional $700bn worth of Treasury securities.
The hope is that eventually the Treasury can sell the distressed assets back into financial markets once the housing market stabilises, perhaps making a profit on the sale.
Others are concerned that issuing more government debt, and virtually doubling the size of the budget deficit, could be inflationary.
The sale could also make the US more dependent on foreign banks, who may be the biggest purchasers of Treasury securities.
