Thursday, November 13, 2008

Global Economic Tremors

Have you been thinking at all about the price of the current hurt? Stephen Lendman has and you probably don't want to know what has been planned for your future. Over a year ago I made a comment on the original Pottersville blog, upon hearing about the money the Wall Street greedsters were hauling home, that it made sense to think it reasonable to demand hundreds of millions in salary/payouts if you believed that it was going to take hundreds of millions to get through the coming bad times (billions if you worked at Goldman Sachs, Bank of America, et al.). Now it seems like I was estimating low. I also want to mention (updating Everett Dirksen's witty phrase) that the retort of "A trillion here, a trillion there, and pretty soon" Wall Street is "talking about real money" is not overstating the matter. Just saying.

As a result, US and global financials will experience their most severe crisis in the last quarter of a century." Roubini now sees the greatest one since the 1930s. Grudgingly, only small numbers of economists agree with him, and the majority think the worst is past and 2009 will bring recovery. Barrons economics editor, Gene Epstein, for one. He asks: "How long will the slump linger? (It's) already under way. But hopefully, it won't extend into 2009." An astonishing assessment at a time virtually all macro data point to hard times in the new year, and the big unknown is how hard and protracted. It's the reason for unprecedented global amounts of monetary stimulus with limited effect so far. It's also why Congress may add hundreds of billions more in fiscal medicine on top of an orgy of past and upcoming government borrowing. The Treasury already announced $550 billion more in Q 4. An amount greater than the announced FY 2008 $455 billion fiscal deficit. In addition, Goldman Sachs now believes Washington will have to borrow $2 trillion to finance an $850 billion federal deficit, buy $500 billion in toxic assets, and roll over $561 billion in maturing Treasury securities. Add to it unknown factors and another trillion may be needed. For loans, investments and commitments, Washington already earmarked: - $700 billion for TARP; - another $150 billion tacked on to EESA funding for pork barrel spending; - $200 billion in the Fannie and Freddie takeover, and Fannie now says the amount is inadequate after reporting a record $29 billion loss and its difficulty in issuing and refinancing debt; in a November 10 SEC filing it stated: "This commitment may not be sufficient to keep us in solvent condition or from being placed into (effective bankruptcy) receivership" if further "substantial" losses occur or if the company can't sell unsecured debt; - $25 billion to the auto companies and another $50 billion more they may get; the industry is effectively insolvent; on November 11, General Motors stock hit a 65 year low and is down over 90% this year; the nation's once largest company is a mere shadow of its former self and won't survive without a bailout; the same holds for Ford and Chrysler; - $29 billion for Bear Stearns; - $85 billion to AIG; upped to $129 billion and again to $150 billion after the company reported a $25 billion Q 3 loss; add $15 billion more for its commercial paper with no end of this looting in sight - to a single company, albeit a big one; - $144 billion to buy mortgage-backed securities, in part included above; - $300 billion for the Federal Housing Administration Rescue Bill for FHA to insure up to that amount in new 30-year fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90% of the homes' current appraised values; - $87 billion to JP Morgan Chase for financing bad Lehman Brothers' trades; - $200 billion in loans to banks under the Fed's Term Auction Facility (TAF); - $50 billion to support commercial paper held in money market funds; $1.3 trillion worth qualifies so a far greater liability may be incurred; - $620 billion in currency swaps with developed nations - central banks in Western Europe (the ECB, UK, Denmark, and Switzerland), Japan, Canada, and Australia; - another $120 billion for emerging markets - to Brazil, Mexico, South Korea and Singapore; and - potential great liabilities to cover the FDIC's expanded bank deposit insurance up to $250,000 per account. These numbers are staggering in size and may go much higher. A trillion here, a trillion there, and pretty soon we're talking about real money, but if enough of it swirls around, today's deflation may one day become severe inflation.
Click here for the entire essay. Think about what this means for the Obama administration. Suzan Oh yes, I just saw that Sears has a commercial on TV now mimicking the Obama campaign's method of getting small donors to cough up by parading their concern for veterans injured in the "wars." I'm taking bets on how much of the money will actually go to the wounded veterans. As if we'll ever know.

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