...Send all our assets overseas, devalue our currency, and we are setting up for a huge failure from which we may never recover.
I most definitely agree.
People seem to be forgetting the proportionate relation between (wage) value and goods - that is, the cost of goods intrinsically informs the value of wages. For example, let us say you garner $150 of wages each week, and the bag of goods you need for that week costs $150 as well. Now, let us say that this same bag of goods increases in price from one week to the next by $150, arriving at a price of $300. Despite the fact that the level of your wage has not been altered, it has been devalued by a proportionate increase in the value of the assets you wish to attain (this is called real wages, or purchasing power). Your wage which once allowed you to subsist is now inadequate.
On a microscopic scale, this phenomenon is not necessarily self evident: After the bail-out, the $150 you withdraw from your bank is still valued at $150 locally. However, it is at the macroscopic scale of international finance where this phenomenon is present and hindering, for several reasons:
a) Traders are attempting to purchase and trade international assets; the direct injection of Capital in the form of moneys
immediately devalues the American Dollar, giving traders less confidence. This lack of confidence, in turn, further devalues the dollar vis-a-vis giving an appearance of lessened strength to the dollar.
b) It removes liquidity from the American market. An asset is said to be liquid if it can withstand a transaction with very little loss in value - by proxy, moneys is the most liquid asset, hence it forming the basis of our Western exchange system. Globally, the U.S., dollar was considered the
most liquid asset given its perpetual strength, and relative lack of risk to become devalued. Now, once again, when you inject several trillion dollars of moneys into the market, you devalue the moneys which are already present - making them
less liquid. This is horrible. Why? Because the perception of a semi-permanent loss of liquidity may cause some to gravitate towards the Euro as the preferred currency (remembering that the higher liquidity of an asset, the greater desire one has to trade it because it does not lose value). If, Globally, the Euro usurps the U.S., dollar as the preferred currency, then
that would be a disaster.
In my opinion, direct injections such as this are a horrible idea, and will no doubt surface unintended consequence which will surpass the initial crisis in their magnitude.
