posted on Sep, 29 2008 @ 06:54 PM
reply to post by Lebowski achiever
I really don't know; I can't tell the difference between the rock and the hard place.
Imagine that the rescue bill gets passed the way the original draft was written. Suppose that your paycheck shows each week a $800 figure. It should
be more, but Uncle Sam takes a bit of it and then you settle things with the IRS on April 15 each year. Now suppose that two weeks from now, you
paycheck shows $750. You ask around about it and it turns out that Uncle Sam has cut bigger chunk out of your paycheck. Now you know where the wind
blows from: the bailout is kicking in. But that's NOT what would happen by any means. The money to buy the bad assets wouldn't be backed by any
produced goods; the government would buy the bad assets with "electronic money." Much later, the government would have to decide how to get the
"real money" from the taxpayers little by little.
Generally, when too much money is created, it doesn't match the real ability of the economy to produce goods and services. In credit based economies,
the interest falls and the economy tries to invest and produce more goods and services to keep the equilibrium. If the economy is too extended and
cannot keep the equilibrium, too much money is chasing after few goods and prices will rise.
Right now the Federal Reserve is pumping "fresh money" into the financial system -- it's a very complicated operation only the financial guys can
follow. But the economy doesn't need this influx; the financial system does (that's the way the Feds feel about it), and so you are right in saying
that this move will cause inflation. How high depends on the amount of extra money and the way it gets passed around.