US Bail Out Plan Approved

The US Senate finally approved the $700 Billion Bail Out Plan that seeks to rescue financially troubled companies by buying their distressed assets by the government in order to cleanse their balance sheets.

The move was earlier rejected by the US Senate on a vote of 228-205. This caused the US stock market, particularly the DOW Jones, to plunge down to its biggest drop since 1987 of 777 points.


The plan includes among others:

• Limited executive compensation.
  


• There was a temporary increase in federal deposit insurance to $250,000 from the earlier $100,000. This will provide a temporary relief to depositors which have huge deposits in banks just in case of a bank run.
  


• There was a two-year extension program of tax breaks that will save tax payers, individuals and corporations, as the Senate added $110 Billion in tax breaks.

Here are my views on the passage:

1. Should the government shoulder the credit mess caused by the greedy Wall Street executives? If so, then definitely every time that there will be a major fall out involving a lot of companies, there will be a superman savior in the form of the US government? Until when will this hero save companies?
   


2. How will the government value these troubled assets when in fact there's no market value since there's no willing buyer for these properties? What will be the basis then for the acquisition price by the government? How fast can the government dispose these assets?
   


3. I do think that this plan will increase the budget deficit of the government considering an additional tax breaks of individuals and corporations.
   


4. Will it really avert an impending US recession that will surely have a domino effect on smaller economies of other countries? Will it bring back the trillions of dollars that were wiped off in the stock market?
   
   
5. How will it affect the inflation rate considering that there will be a big additional cashflow in the economy system? We all know that by Law of Supply and Demand, if there's an increase of cash liquidity in the system, inflation rate increases.

However, on a positive thought:

• The economy 'may' recover as this plan will provide more credit to flow in the system. This would mean a decrease in the rising unemployment rate and a pump prime in the economy as this will 'probably' increase consumer consumption.

Considering the pros and cons, will it really be beneficial? Share me your views.