Nov. 25th, 2008

peterbirks: (Default)
Well, all this Paulson stuff is a bit by-the-seat-of-the-pants, isn't it? Not so much proactive as "What the hell do we need to do this weekend to stave off Armageddon?"

Not for nothing were the American markets and, by default, those in the UK, mainland Europe, and Asia, cock-a-hoop at the Sunday night bailout of Citibank. For a start, it was a bit like the "phew, not another Lehman Bros". Andor a secondly, it was a clear implication that the de facto nationalizing of banks in the US was now in full swing. Forget the pretence of buying up toxic sludge. This is full-blown government taking control. Citibank is AIG mark II and there has to be some suspicion that Bank of America (really the old Nationsbank with BofA tacked on) might be mark III.

These days numbers like $300bn are bandied about with a light-heartedness that ought to defy belief. Every time the government steps in with that kind of money, it's $2,000 from every tax payer. It's a fair lump of the country's GDP. Although most of that money will come back, eventually, in the short term it's an allocation of funds that means either printing more money or not spending it elsewhere. And with these kind of numbers, the second option is, er, not an option.

So, it's more US bonds. And Darling's little bit of VAT dallying will mean more UK gilts. If we have deflation, that will be serious money that the two governments have to pay off over the next decade.

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