Brace For Hyper-Inflation, 3
By Henry Blodget
By insisting on bailing out bank bondholders to the tune of 100 cents on the dollar, John Hussman says, the government has crowded out $1 trillion of private investment and almost guaranteed double-digit future inflation.
Hussman’s weekly note explains the crowding-out part in detail (it’s complex, but important). Here’s a quick summary:
Bailed-out banks are not pumping new cash into the economy. They are dumping crap assets onto the Fed’s balance sheet in exchange for cash, which they are then using to buy newly-issued Treasuries. The banks don’t have any more cash than before: They just have safer balance sheets than before. No new cash is being put to productive use in the economy. The government is just borrowing more to bail out bank bondholders who gave the banks money to blow in the first place.
So what does this mean?
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