Sunday, July 4, 2010

Another Bailout possible?

There was a news article stating that the BIS (Bank of International settlements based in Switzerland- the so called central banks bank) has stated that if there is another economic crisis and need for another bailout, most of the countries would not be able to do it and only the IMF and U.S.(maybe) will have to step in to save the world. Actually the article was specifically stating that the U.K. (which has spent nearly $1 trillion on bank bailout) would break if it is asked to have another massive bailout.

I wholly agree with this scenario. The governments of the world have put so much money into the system that if the next crisis comes, we will not have enough ammunition to stop the decline. Who will invest in our bonds or bail out countries if they are already so much in debt. You can’t expect investors to keep on buy government securities if they feel that they will not get adequate return or maybe no return. Interest rates will have to go up, spending will be cut drastically and taxes will be raised way too much. The welfare state which the western industrial countries are so proud of will be a thing of the past as it will be curtailed drastically beyond what people will be expecting. The question here is how much debt the governments can take on without destroying their finances. On top of this, many economists and commentators are arguing for more money to shore up economies, since they say that once the economy grows, then we can take care of debt. But here is another case, once you put people through subsidies, it does not go away.

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