1. Flowcharts of Paulson Plan Why it won’t work Steve Keen www.debtdeflation.com/blogs

2. Precis This is just a very fast sketch of the probable feedback effects from the Paulson Plan, prepared to guide comments to a the Australian Channel Nine TV Today show I used US$2 trillion as my ballpark, both because US$700 billion seemed just too small in the light of the scale of US private debt—US$25 trillion for households and business, and $41 trillion when financial sector debt is included—and because I expect the “Plan” to blow out over time anyway to much this level. This analysis is a long way short of the type of dynamic modeling I prefer to do to consider the consequences of economic policies; –but with less than a day’s notice of the interview, it’s the best I could come up with. Mind you, it doesn’t look too bad in the light of the “Say What?” comment posted on the Doonesbury site today (http://www.doonesbury.com/strip/dailydose):http://www.doonesbury.com/strip/dailydose –“It's not based on any particular data point. We just wanted to choose a really large number.“—Treasury spokeswoman on the $700B bailout figure

3. Issue $2 tn bn Gov Bonds Sell 25 yr bonds at 3% Buy RMBS from Banks etc. Owns RMBSs Public cash reserves fall $2 tn 25% Income from RMBSs at 10%: 2 tn * 10% * 25%=50 bn/yr for 25 years Servicing cost 3% of 2tn= 60bn/ yr Principal of 2tn needed in 25 years say 40 bn/yr Capital Recovery say 25% of 2tn = 500 bn over 10 years say 50 bn/yr 10 bn/yr tax increase 1500 bn deficit at 10 yrs 60 bn/yr tax increase at 10 yrs for 25 yrs 70 bn/yr total tax increase Repay bonds in 25 years Public cash reserves restored in 25 years minus house repurchases Drop in capacity to pay debt down Private debt reduction 10%/yr 30% fall in aggregate demand Depression Banks solvent but few borrowers… Reduction bank assets

4. Print $2 tn cash Buy RMBS from Banks etc. Govt owns RMBSs 25% Income from RMBSs at 10%: 2 tn * 10% * 25%=50 bn/yr for 25 years Capital Recovery say 25% of 2tn = 500 bn over 10 years say 50 bn/yr 2 tn additional cash; say… 50% bank assets 50% cash with public; say… Private debt still 30 tn+ 50% spend = 500 bn/ yr (optimistic circulation effect) 50% asset purchase; 500 bn Private debt reduction 10%/yr 30% fall in aggregate demand Less severe Depression Banks solvent but few borrowers… Reduction bank assets.5/12 tn = 4% boost to aggregate demand.05/12 tn =.4% boost to aggregate demand Plus 4.4% boost to aggregate demand