Still no bail out deal: the serious Grilli is already starting to hit the fan - and not even from the biggest bank failure in the history of the world last week in Washington Mutual.
What will happen is this (at least according to leading economists):
the credit markets are drying up rapidly.
As an example:
My Jeep loan is at 0% interest (this loan is a bit over four years old, and has less than a year left).
As of a couple of days ago, you could not get a car loan for less than 15% interest unless you have perfect credit.
This adds thousands of dollars to the loan, and makes it a lot harder for the average person to pay it off.
Obviously this goes across the board - not just cars.
With little to no money in the credit markets, people cannot get car loans. They cannot take out mortgages. They cannot get student loans. They cannot get credit cards.
Businesses cannot get credit, either.
This means that they cannot expand. They cannot build new facilities. In a crisis they cannot get the money to tide them over until things get better.
Business close to the edge cannot get money to help with things like...
paying people their salaries.
So then - with no credit, the entire economy starts to freeze up.
People cannot buy large ticket items, which causes a lot of businesses to be stressed/outright fail.
This puts more people out of work.
People will not be paid, so that even more mortgages fail, and some people cannot even buy basics such as food.
Things start to snowball into avalanches of personal and business failures - all of it feeding more and more failures as more and more businesses fail and more and more people become personally bankrupt.
You get the twin demons of value falling on everything from homes to cars so people sell them (if they can sell them at all) at huge losses while interest rates soar to the moon, putting an ever greater squeeze upon everything and everyone.
And because of the interwoven world economies, this new Great Depression spreads worldwide - hitting the Third World the worst, as those countries cannot even buy food and widespread famine begins to stalk the Earth.
Obviously, this is the worst case scenario - but it is still within the realm of possibility.
This is why - repugnant as I find the bailout - it
has to be done.