> Well, if that's the case, let THEM pitch in and send US the $700 > billion! > They already did, that is the central problem. They want their money back.
For a long time America has been living by borrowing money from the rest of the world. That has funded a real estate bubble and a stock market bubble. Banks around the world need to keep dollars because the dollar is the main trading currency. But if they have bank deposits they want to earn interest, so they buy T-bills or to get a better rate of return they buy mortgage backed securities. But the mortgages aren't worth what it says on the paper because people have been telling fibs about the value of the real estate and the income stream. So banks, US and foreign are sitting on lots of paper that might not be worth what it says it is. Now banks can lend money up to a multiple of their capital base. If a bank has capital of 10Bn then it can write loans and take deposits up to about 100bn. It needs that capital because banks borrow short and lend long, so if everyone turns up to ask for the money they've put in the bank they can't easily go and get it from the people they've lent money to. (Watch "It's a Wonderful Life", it explains it quite well). If they have assets they think are worth 100bn, but in fact they're only worth 90bn then they have to take a loss onto their books. If they take a loss of 10bn and they have only 10bn capital that wipes out their capital so they can't lend money. Banks lend money to each other overnight all the time to make sure that the books balance at the end of each day. But if there's a danger that the bank might not be in business next morning when the loan is due then you don't want to lend to them. But no one knows who might have these toxic securities on their books, so no one is sure that if they lend to another bank they will get their money back. If the loan can't be repaid then they have to take it as a loss, which could wipe out their own capital base. So the credit markets have seized up. The last time this happened was in the dark days of the 30's when so many banks went out of business that the US very nearly went back to barter. At one point so many banks were closed all over the place no one could cash a cheque for days on end. Effectively money had stopped working. That's why people who know their history are shitting themselves. Think of it like a giant version of the TMO. The TMO has been living on donations from rich people for decades. These people have assumed that their money has been going to support pandits and teaching TM in India and other projects. When they find out that actually it's been used to buy mansions, and fund high living for Maharishi's family and the number of pandits seems to be a lot less than you might expect from the money that's gone into India, then they don't feel so much inclined to give money to the TMO. So the supply of money dries up and projects like the Smith Center in Kansas have to be mothballed. Well it's like that with the rest of the world and America. The rest of the world has been putting their hard won cash into dollar assets, and now they find those assets aren't worth much. So they don't want to put their money in dollars assets anymore. But the American economy depends on other countries pumping money in to keep it afloat. Just like the TMO depends on rich people pumping money in. If it depended on earning its way in the world it wouldn't survive. Would you change dollars for Mahas if you knew that the TMO might not be able to honor the bill? The problem is that the rest of the world uses the dollar as its reserve currency and now they find it ain't worth what they thought it was. Serious stuff.
