Flowcharts of Paulson Plan - PowerPoint PPT Presentation

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Flowcharts of Paulson Plan

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Title: Flowcharts of Paulson Plan


1
Flowcharts of Paulson Plan
  • Why it wont work
  • Steve Keen
  • www.debtdeflation.com/blogs

2
Precis
  • This is just a very fast sketch of the probable
    feedback effects from the Paulson Plan, prepared
    to guide comments to a the Australian Channel
    Nine TV Today show
  • I used US2 trillion as my ballpark, both because
    US700 billion seemed just too small in the light
    of the scale of US private debtUS25 trillion
    for households and business, and 41 trillion
    when financial sector debt is includedand
    because I expect the Plan to blow out over time
    anyway to much this level.
  • This analysis is a long way short of the type of
    dynamic modeling I prefer to do to consider the
    consequences of economic policies
  • but with less than a days notice of the
    interview, its the best I could come up with.
  • Mind you, it doesnt look too bad in the light of
    the Say What? comment posted on the Doonesbury
    site today (http//www.doonesbury.com/strip/dailyd
    ose)
  • It's not based on any particular data point. We
    just wanted to choose a really large
    number.Treasury spokeswoman on the 700B
    bailout figure

3
Issue 2 tn bn Gov Bonds
Servicing cost 3 of 2tn 60bn/ yr
Principal of 2tn needed in 25 years say 40 bn/yr
Sell 25 yr bonds at 3
25 Income from RMBSs at 10 2 tn 10 2550
bn/yr for 25 years
Banks solvent but few borrowers
Buy RMBS from Banks etc.
Public cash reserves fall 2 tn
Reduction bank assets
10 bn/yr tax increase
Owns RMBSs
Public cash reserves restored in 25 years minus
house repurchases
Capital Recovery say 25 of 2tn 500 bn over 10
years say 50 bn/yr
Drop in capacity to pay debt down
Repay bonds in 25 years
1500 bn deficit at 10 yrs
Private debt reduction 10/yr
60 bn/yr tax increase at 10 yrs for 25 yrs
70 bn/yr total tax increase
30 fall in aggregate demand
Depression
4
Print 2 tn cash
25 Income from RMBSs at 10 2 tn 10 2550
bn/yr for 25 years
.05/12 tn .4 boost to aggregate demand
Govt owns RMBSs
Capital Recovery say 25 of 2tn 500 bn over 10
years say 50 bn/yr
Buy RMBS from Banks etc.
50 bank assets
Banks solvent but few borrowers
2 tn additional cash say
50 spend 500 bn/ yr (optimistic circulation
effect)
.5/12 tn 4 boost to aggregate demand
50 cash with public say
50 asset purchase 500 bn
Private debt still 30 tn
Private debt reduction 10/yr
Reduction bank assets
Plus 4.4 boost to aggregate demand
30 fall in aggregate demand
Less severe Depression
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