Bailout Plan: Borrowing A Trillion Dollars Will Have Negative Consequences

Don’t be surprised if oil makes another bull run and we see additional consequences in the FOREX world as a result of the Government’s recent round of bailouts, you can’t make plans to borrow nearly a trillion dollars (probably more when all is said and done) to fund various bailouts without suffering any negative consequences:

From the Associated Press:

NEW YORK – Oil prices spiked more than $25 a barrel Monday — the biggest one-day price jump ever — as anxiety over the government’s $700 billion bailout plan battered the dollar and touched off frenzied buying of safe-haven investments including crude.

Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back somewhat to trade at $122.60,up $18.05. The contract was set to expire at the end of the day, adding to the volatility; the October price began accelerating sharply in the last hour of regular trading.

The November contract, scheduled to become the front-month contract at the end of Monday’s session, was trading at $108.80, up $6.05.

Crude has gained about $40 in a dramatic four-day rally that has at least temporarily halted oil’s steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.

“We’re off to the races again in crude,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. “There’s a renewed scramble for commodities because of a general weakness in the dollar.”

The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased…

…”They’re going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer,” said Matt Zeman, head trader at LaSalle Futures in Chicago. “Right now it’s fear and anxiety driving people who want tangible assets.

The 115-nation euro rose to $1.4781 in afternoon trading, up from the $1.4470 on Friday. A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector.

Perhaps the most important question(s) are: “how long is our economy going to suffer from the 1-2 punch of the current financial crisis AND its cures?” How far will the dollar fall and oil gain once the bailout plan proves to be largely ineffective?

There is no such thing as a free lunch and we’re going to be paying for/suffering from the current crisis well into the next decade if not beyond.

You can read the original article in full here, and coverage from the WSJ here.

Sources:

The Associated Press (via Yahoo News): “Oil spikes $25 a barrel on anxiety over US bailout” — September 22, 2008.

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