A Picture of the Money Flow to Fund the Government Bailout

A good illustration and explanation on where the money will come from to do this government bailout. For the record, I’m for the bailout, even though we’ll all by paying for this for years to come. But it’s better than the alternative, which, in my humble opinion, was going to be another Depression (with a ‘D’ not an ‘R’).

In that scenario, we’d all be paying but it would be a whole lot more painful and protracted.

Here’s the quick explanation for the flow:

Think about what’s been happening in the markets. The public basically wants out of the private financial system and into Treasuries. But the financial system has been unable to meet that demand, because it can’t sell off toxic paper. Now, under the Paulson plan, the Treasury will buy the toxic paper, which will give the financial sector the funds to pay off debtors, who will use the funds to buy the Treasuries the feds will have to issue to finance the toxic-paper purchases.

Follow the money – Paul Krugman – Op-Ed Columnist – New York Times Blog

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