Friday, September 19, 2008

Questions In The Aftermath of the Bank Rescue

As details emerge regarding the government's proposed plan to assume toxic bank debt and backstop the mortgage and money markets, the estimates of the cost are quite high. How does such a massive assumption of debt affect perceptions of the dollar and the creditworthiness of the U.S.? How will it affect government borrowing going forward (and thereby interest rates)? How will it affect inflation? How will it compete for investment dollars with corporate borrowing? How will all of these affect economic growth in the U.S.? It's interesting to see that, with stocks soaring today, gold is moving higher (top chart); the euro is moving higher vis a vis the U.S. dollar (middle chart); and 10-year Treasury rates are soaring. Time to hedge U.S. dollar exposure?