According to today’s New York Times, it’s the beleaguered US taxpayer. In fact, the word “taxpayer” appears five times in their report on Fed/Treasury actions, always in connection with where the burden will fall. But this is flatly wrong.
In case my previous post was too oblique, let me say it bluntly: Taxpayers are not and will not be the ones to finance the bailout of the financial sector. There will be no tax increase to pay for it, nor will there be drastic (eleven-figure) cuts in other federal spending. It will be financed by substantially greater public borrowing from sovereign creditors, especially the People’s Bank of China and the various entities of the Gulf Cooperation Council. (Russia is an uncertainty in light of its own financial crisis.) The feasibility of the bailout depends entirely on the continued willingness of these deeply authoritarian countries to continue recycling their mountainous piles of dollars into dollar-denominated assets—formerly including private sector debt but now public debt exclusively.
In the absence of this external support, no bailout plan is remotely possible.
So, how is that not a taxpayer-funded bailout, exactly? Or did I miss the part where someone who isn't the American taxpayer pays back principal and interest on the money borrowed from the authoritarians? And of course, one wonders exactly what interest rates will be on those bonds, given the extent to which the current collapse indicates that the US is not as reliable an economy as it once was.
ReplyDelete(This ignores the political effects inherent in owing money to China and the various oilarchies, but that's not a purely economic issue.)
Paperwight,
ReplyDeleteDebt service? We'll borrow for that too. No Ricardian equivalence on the horizon. Wisecracks aside, no one is thinking about how we might retire this debt in the future, just as questions about our substantial non-bailout external debt are largely off the table. This is not a criticism, just an observation. In the blizzard of discussion about bailout programs, do you hear any mention of exactly how it will be financed and what this financing will mean for the future? We have been assiduously not talking about our reliance on sovereign lending for several years now.
It’s a great post, you really are a good writer! I’m so glad someone like you have the time, efforts and dedication writing, for this kind of article…
ReplyDelete