US buy back of toxic assests is turning out to be the largest ever government investment plan, with the US government now planning to buy approximately $1.2 trillion worth of toxic assets (not all of this money will come from the governement, they are planning to fool some private investors into this as well). I understand the need for this measure, but this also points to a desperation on part of the US government to artificially prop up some financial institutions that are not healthy enough to survive. The policy makers in US smoothly transitioned from being staunch capitalists to socialists in a span of about 11 months. As a result of these actions the countries worldwide now feel that US is no longer the role model when it comes to managing the financial makets and economy. In the forth coming G-20 summit we will see loud calls from some countries for more say in how the global financial makets work. Countries across the world are sitting up and taking notice of the fact that US will be running budget deficits for sometime to come (some estimates put the budget deficit at $500 billion in 2013, with no balanced budget in sight for a long time to come).
Russia and China are already talking about the idea of a new global reserve currency.
Here are a few observations about the plan
- US government seems to be putting in good money to buy bad money
- US governemnt did not let free markets work as it selectively propped up sick
- US dollar could lose its status as a global currency as a result of this plan
- US government will enjoy disproportionate power over the private sector players receiving government money for some years to come (GM CEO was made to resign today)
Whats interesting in this huge plan is that the governement does not seem to have any idea of the timeline, ask them by when they expect a turn around and u will see blank faces. Heads are gonna start rolling all around if we dont see some positive indicators in the next 6-8 months or so.
