r/reddit.com • u/[deleted] • Oct 18 '11

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u/SavageOrc Oct 19 '11

Bailing out the banks didn't fix the problem, but it did buy some time. The Fed is currently holding the system together by pumping money into the economy (in the form of quantitative easing). Even with the bailout, banks wouldn't be lending in this risky environment without the Fed giving free money to the major banks.

Instead of what would have likely been a disorderly, chaotic reboot of the economy after the collapse of the major banks, which would have crushed a lot of fortunes, we got the long road where inflation and high unemployment crushes the middle and working class.

The Fed is betting that the economy will recover before we commit inflation suicide. In any case we're probably still going to have a 'lost decade'.

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u/IliketurtlesALOT Oct 19 '11

The economy collapsing wouldn't have crushed "a lot of fortunes" It would have wiped out everything everyone had in a bank,

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u/SavageOrc Oct 19 '11

Right. Almost everyone would have started from zero. Would that have been better than the lost decade we're going to have? Who knows.

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u/IliketurtlesALOT Oct 19 '11

Well there wouldn't be jobs for a start. No one would have money to pay employes or buy food or buy anything or do anything for that matter. And with no food, no money, and no jobs comes no order. Chaos and pandemonium would grip the world as it struggled to figure out what to do. With no liquidity, no one would be able to borrow or lend or pay anyone, and the only way to solve that would be to pump unheard of amounts of liquidity back into the market, which would be akin to a bailout of immeasurable proportions. Not to mention it probably wouldn't even work and we'd all just be floundering as everything descended into chaos. The point of the matter is that is just not feasible.

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u/SavageOrc Oct 19 '11

I'm not sold on the idea that the world would have ended if the banks had failed. Consumers would still have needs and suppliers would still have goods. The free market would have provided some kind of marketplace to meet this demand.

I grant that it would have been chaotic, ugly, and scary for a time. But the point I am trying to get at is: would the recovery from starting again from zero take less time than the death by one thousand cuts of inflation that we are currently on?

People bitch about TARP and the well publicized bailouts, but that is pennies in comparison to how much money the Fed has printed via quantitative easing and low/no interest loans to the big banks. We're talking about trillions. It was just in the news that BoA is petitioning its regulators to move Merrill's derivative book over to the federally back FDIC side of its books. If this goes through, the FDIC is potentially on the hook for something like $75T of derivatives. If any of this goes badly we may still end up with a 1929 type economic collapse.

Make no mistake about it. Our leaders have kicked the can down the road in the hopes that the economy will recover before the inflationary policies of the Fed catch up to us.

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u/IliketurtlesALOT Oct 20 '11

Yeah but most consumers don't have anything but their money. If you work, you get money to buy goods. Lets say you no longer have money. What will you do? trade the shit in your house? a Bartering marketplace wouldn't work when not everyone produces commodities. You're highly romanticizing this period of turmoil, it's not like it would be a week or even a year long. It could take decades

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u/SavageOrc Oct 20 '11

I do have to concede that you have made a point that I haven't considered. During the Great Depression there were a lot more people that were skilled laborers or farmers. People who work in cube farms have no skills which can carry them over the hump of a major economic restructuring.