Look I wake in a cold sweat thinking about supporting this bailout:-). I may not actually but it’s really unnerving.

There is this guy Ingolf over at the site below who put it very eloquently as to why. It’s a good read.

http://clubtroppo.com.au/2008/10/01/bitter-harvest/

JC and Pommy back and forth on ‘don’t believe the Fed can keep tapping the bond market indefinitely.’ Perhaps it our two peoples separated by a common language (Churchill’s famous joke), but to Americans, “tapping” into the bond market would describe the Fed selling bonds in order to put cash into its vaults. This is exactly the opposite of what the Fed has been doing for the past several weeks; if anything, the Fed will BUY bonds, in order to flood the market with cash.

Secondly, the ‘flight to safety’ from the melt-down has driven interest rate yields on government T-bills to near zero. In the open market, investors are buying cash assets with little or no yield, in order to avoid even the faintest hint of risk. The surge in T-bill purchasing is flooding the Treasury with cash.

The problem is still the credit crunch, not liquidity; the U.S. economy is flush with cash…which nearly everyone is holding on to with both hands and sitting on it.

The one bright spot in the debacle is that the speculators are beginning to fly to slow circles overhead. Fire sale prices in real estate are starting to attract intrepid souls with cash to spend; in the market meltdown, the specs are beginning to sniff out a bottom.

The Senate votes soon on a revised bailout plan. Unlike the House’s vote yesterday, two thirds of the Senate members are insulated somewhat from furious voter anger at the meltdown; they might actually approve some form of bailout plan.

Wasn’t it Marxist Otto Bauer who argued in 1919 (the Russian Revolution) that the best method for communism to take over capitalism was to simply nationalize the banks? His ghost today walks the halls of Congress, chuckling.

My hot tip: BRK all the way.

i dont believe the Fed can keep tapping the bond market indefinitely.

Should read:
which isn’t inflationary

the former is waning fast and the outlook for the latter is worsening (though not a problem today).

if they do the bailout, they will borrow the funds through the bond market which isn’t deflationary. How does gold do well in the that period?