Where Are These Endless Bailouts Heading?

It is hard to keep track of the ever expanding extent of national government and supra-national bailouts. Just some that I could mention, but many more that have probably slipped my attention, are:

• The UK government appears to stand ready to shovel credit the way of any small business owner that comes through one of the partly nationalized bank's front door.
• The IMF is hastily rescuing numerous economies on the global economic periphery which have dubious credit standings to put it mildly (not that a dodgy credit rating has been an issue in recent times in the developed world either)
• The Russian government has put together a $6 billion rescue package for its most stressed billionaire oligarchs (some of whom could be down to their last few billions)
• In the US many regional banks and auto companies that surely have reached their sell-by dates look likely to be in receipt of publicly contributed funds.

The next priority must surely be to bail out the struggling developers of some fabulous extravaganzas in Las Vegas that are clearly of strategic national interest.

At some point, the ongoing bailout of private enterprise will bring about a bale out from government debt securities.

In the equity markets, the cheerleaders are suggesting we look across the valley to the future earnings growth that is likely to re-emerge with all of this stimulative government intervention.

If one is consistent, bond traders should be looking across that same valley and getting increasingly uncomfortable that additional supply, the ubiquity of cheap short term money and a re-kindled commodity sector cannot be good for bond prices.

Comments

[investor88:]

Governments are engaged in bailout after bailout. The consequences of extreme actions cannot be forecast with certainty, there could be unintended consequences. Those who are bullish just because the governments can print money and print print print, they ought to consider the big picture.

2008 Oct 31 08:44 AM