The UK today announced a series of huge investments in its credit markets. They go well beyond bailing out banks, and the programs could be used as examples of what other large national economies may have to do.
According to the The Wall Street Journal, "The U.K. government also announced that the Bank of England will set up an asset purchase program to buy high quality private sector assets." Put more simply, the UK will buy the debt of corporations and other entities.
The program moves well beyond the steps taken so far in the UK and the US because it pushes the government's actions beyond the banking system. But, that is what may be necessary. Even companies with strong balance sheets are having trouble getting credit. The lack of capital is cutting off expansion. In some cases, corporations with debt coming due may have to default, even if their underlying businesses are in relatively good shape. The state of bank balance sheets has taken them out of the positions as lenders of first resort to the entire corporate world.
Will the new program work? Maybe so. The largest criticism of bank bailouts has been that the banks keep the money to improve their reserves. That won't be an issue if the government is providing the money directly into the lending system.
Douglas A> McIntyre is an editor at 247wallst.com.
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