We waited a while today to review the treasury's new plan for dealing with the increasingly pop-culture termed toxic assets held by the banks in the form of mortgage backed securities.
Upon examination it's not surprising that Wall Street and the financial sector appreciated the approach as it essentially allows them to be given money from the treasury to purchase questionable assets with a 93% guarantee from the federal government on those acquisitions. So the downside should these perhaps toxic assets go south on the investors has been almost completely removed by the federal government loaning money for their purchase and will only have be repaid upon success, should it be forthcoming.
It is essentially like gambling in Vegas with house money except that the house money is taxpayer dollars. The market should at least be happy with receiving some sort of plan as it has been poised for a sort of rally for the last two and half months. The M2 money supply, which is a measure of the amount of money in circulation has been ticking upward and the yield curves on short-term and long-term treasury bills have untangled themselves from an inverse relation, which is almost always a sign of recession.
The plan could very well free up some lending in the credit markets as a value will be established for some of the assets in their portfolios, however, the massive amount of cash injected into the system which has essentially been created by the treasury stands an extremely high probability of causing an inflationary cycle. The only way this can be kept from getting fairly out-of-control is by a rapid increase in the GDP to increase the amount of goods and services to somehow match the amount of money that was created in the system. The economic models put forth by the Obama administration have been almost roundly criticized as wildly optimistic and mostly attempts to downplay deficit increase and inflationary peril.
Other than that things are just peachy -- we do stand a better chance of doing well here, especially if we don't completely destroy the energy sector in our economy.
