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Today we don't have bank runs or bank holidays, we have bank bailouts.
The Federal part of FDIC's name refers to the US government, (not to be confused with the privately owned Federal Reserve). When a bank in the United States goes into receivership, the FDIC uses taxpayer money to cover all the insured deposits at the bank. This has been done for small, local banks that create bread-and-butter loans for homes and businesses.
But the really big financial firms like Citigroup, AIG, and JP Morgan, the ones that made this mess, simply won't be allowed to fail.
Last October the Bush administration passed the $700 billion Troubled Asset Relief Program. Just like the bank holiday of the Great Depression, TARP was sold to the American people as a way to end the economic crisis. Instead the money is being used to bail out Citigroup, Bank of America, and the other institutions that have caused this depression.
The "troubled assets" referred to are of course derivatives. TARP has funneled billions of our tax dollars to Morgan Stanley, Goldman Sachs, and other financial firms in exchange for these worthless assets. Unfortunately, the nominal value of all derivatives contracts held by US banks has reached 200 trillion dollars, so TARP is just a drop in the bucket.
Since President Obama's election, the Federal Reserve and Treasury Department have tried various ways to contain the economic meltdown.
The Fed has launched an alphabet soup of new auction facilities that have purchased over one trillion dollars worth of derivatives. The U.S. Treasury has created the Public Investment Corporation. This aptly named government agency will invest another trillion in derivatives, using our tax dollars as collateral.
Finally, the Obama administration has passed a massive 3.5 trillion dollar federal budget, the largest in history. Half of the budget for 2009 is debt. And nearly half of this year's $1.85 trillion federal deficit is the administration's $787 billion "stimulus".
In the Great Depression when the imaginary wealth created by speculators disappeared, the money vanished during the bank runs. Trillions of dollars worth of wealth has disappeared again, only this time the Treasury and Fed are printing trillions to cover the losses. The Obama administration has put the world on notice that they will simply create the money to bail out our economy.
According to the mainstream media, the financial meltdown has been contained. Consumer confidence is rising along with the stock market, and the battered US economy is on the mend. President Obama has been widely praised, and given most of the credit, for his deft handling of this crisis.
The press and pundits are right about one thing: Obama's economic solution is ingenious, even miraculous. It requires almost no sacrifice, no belt-tightening, no spending cuts or tax increases. His administration will simply print three trillion dollars worth of U.S. Treasuries, and we will borrow and spend our way out of this depression.
The Federal Government will run a deficit of $1.85 trillion this year, and another $1.2 trillion next year. Printing all these Treasury Bonds over the next two years will be easy. The hard part will be finding enough suckers to buy them, and then financing the interest payments on our skyrocketing debt.
The question is: Who is going to purchase over three trillion dollars worth of U.S. Treasury Bonds?
China, Japan, and Sovereign Wealth Funds buy 70% of our debt. Our merchandise trade deficit with the rest of the world surpassed $800 billion last year. Which is of course where these foreign interests get the money to buy U.S. Treasuries.
Six months after the 1929 market crash world trade had declined by 30 percent. According to the Progressive Policy Institute, current merchandise imports into the United States have fallen by a third, to $210 billion a month from $310 billion six months ago. Japan's exports plunged a record 49 percent in February, automobile exports tumbled 71 percent.
In addition to plummeting revenues from imports to the U.S., foreign interests have lost billions on their investments. Norway's state pension fund lost 90.5 billion dollars last year. The Government of Singapore Investment Corp. lost as much as $33 billion in 2008. Kuwait's sovereign fund lost 31 billion dollars a a result of the global economic crisis. The worst losses were from high-flying financial stocks like Lehman Brothers, (now bankrupt), and Citigroup, down 80 percent.
