Will the bailout work? - Yes, it might provide temporary relief to the US economy.

Congress asked to act quickly on $700B bailout....
If Congress passes this $700 billion rescue proposal without an in-depth review, they are even more incompetent than what most people already think.

Bernanke and Paulson and Bush warn, “We’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.” That sounds a lot like, “We don’t want the smoking gun to be a mushroom cloud.” When you don’t want people to think much about a proposal, be it to go to war or bail out your friends, you try to scare the pants off them.

The proposal would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue.

Will the bailout work?

• With Congress set to adjourn next week for the election season, time is short to work out the details of the plan and get it passed. So, Congress must decide before the market opens up on Monday.
• The difficult questions about the rescue plan is how much it will cost the taxpayers, the banks, and the distressed homeowners. Part of the answer is what price the US government pays for the distressed debt. If it buys at book value, the banks will have gained and the taxpayer will have taken over the liability. If, on the other hand, the government buys up the debt at distressed values, the government stands to gain if eventually some of the mortgage debt recovers its value.
• The move might provide temporary relief to the US economy, they also pose some long-term challenges.
• The increased borrowing by the government will have to be paid for - and with the growing reluctance of foreigners to hold US debt, it will ultimately mean higher savings, and less spending, for the US economy.
• The cost of the rescue could also eventually push up the cost of borrowing as the Federal deficit grows, and thus weaken the long-term prospects for the economy. And the higher debt could also eventually weaken the dollar, forcing the Fed to intervene to raise rates to prevent a sharp fall.
• Although these are big risks, the shattering of confidence is the biggest problem. And if these measures fail, it will fall to the next president to craft a package to rescue the economy.

-HBJ Capital Team