Today (Friday, 9/26/08) will be an important day in American history. The credibility of the US dollar is at stake, which in turn depends on worldwide confidence in the US economy's future. [Note to gold bugs: see the end note.]
Almost everything I've written about at this blog for the last four years (regarding how bright the future just might be) depends on one huge but intangible asset on the balance sheet: worldwide confidence in the dollar. Accountants would liken it to an asset called "goodwill"; I roughly estimate the brand name "US dollar" to be worth around fifty to a hundred trillion dollars in present value. If we destroyed that asset, it would be like destroying the most powerful brand name in economic history.
I hope the Republican holdouts do understand that -- but some of the things I've heard about those who are blocking the rescue package are making me doubtful. If the Newt Gingrich faction "succeeds" in stopping the rescue package, they have a good chance of wiping that hundred trillion dollar asset off the balance sheet in one short weekend.
Frankly, I'm starting to think Gingrich learned nothing at all from his failed 1995 attempt to embarrass Clinton by shutting down the government (...by playing Russian roulette with the meaningless "debt ceiling"). Now it sounds like Russian roulette with the US dollar's future.
I guess we'll know by Sunday evening. Look for a change in tone here if the Republican holdouts put a bullet in our economy's brain.
By the way, the rescue package is not a "bailout"; it's an asset swap, to be followed by a subsequent swap to get the dollars back -- and it might not end up costing taxpayers a dime. It is beyond me why so many who should know that apparently don't know that.
Final note, for Ron Paul fans, gold bugs, and monetarists:
In the equation of exchange (MV=PQ), the math gets a lot easier when you folks simply assume that V, the velocity of money, is a constant -- which in turn makes it easier for you to argue that any increase in M, the money supply, is "inflationary."
Please remember the old cliche, however, that "assume" makes an ass out of u and me.
How much evidence do you need that the velocity of money can in fact drop to near zero? That's what is meant by "freeze up," "liquidity crisis," and "cash crunch." How much more evidence do you need that the velocity of money can drop, and when it does, the Fed needs to inject more money just so the economy breaks even instead of going into a tailspin that could very well end up in a deflationary depression?
Please, I'm serious: Just how much more evidence do you really need? (Or do deflationary depressions not bother you, for some reason?)