Uncle Sol Starting a thought farm

Economy in Recovery

I just read this piece and had to post something about the ridiculous system our Federal Government and central bank are creating. We keep hearing in the news and from our President and other politicians that the economy is in recovery, while at the same time unemployment is high and the government is spending trillions to prop up their statistics in measuring economic activity (GDP). In the mean time, a Nevada credit union is paying its depositors to withdraw their money because they can't afford to keep it on hand. From Mish's Global Economic Trend Analysis:

The National Credit Union Administration (NCUA) and FDIC parasites siphon off deposit insurance money from good institutions not willing to take risks, to support institutions taking excessive risks.

In turn, banks and credit unions sitting with high levels of cash lose money on deposits and the customers make zero percent interest, thanks to the Bernanke Fed holding interest rates at zero.

Priceless.

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An Explosion of Debt

I posted an article this morning at the Return of the Great Depression blog on the recent growth of the national debt.

Amid these turbulent economic times we have seen many changes, not least of which is the change in the U.S. National Debt. The debt, which has been steadily climbing since the beginning of the last century, has, of late, taken an unprecedented surge.

We don't often think too much about the national debt. After all, if you are like me, in your mid thirties, then the fact that the government is in debt and the debt is growing is a fact of life. It's been that way all your life, all your parent's lives and all your grandparent's lives. You hear some noise about it now and then, but it hasn't seemed like anything really bad has ever come of it.

The real trouble here is not only the fact that we're in debt, but how much the debt has grown recently. It's very difficult for us to think in terms of trillions of dollars. The number is so large that our minds can't really grasp it. The closest I can come to getting a feel for it is when I think of a trillion dollars as being a million million dollars. I still don't think it really gives you a powerful enough grasp of it, but at least you can begin to taste it. And now we're adding trillions of dollars to the debt as if there were, literally, no tomorrow.

And that's where the question comes in. Will there be a tomorrow? Not included in this article because I couldn't find any corroborating sources (I couldn't find any contradictory sources either, I'm finding this information very difficult to come by) was a report I saw on Max Keiser where one of his guests states that the bulk of the debt over the past 18 months has been comprised of two year treasury bills. Now, just because the bill matures in two years does not mean that the owner will attempt to cash it in in two years, but as our economy worsens and holders of debt begin to doubt the ability of the borrower to pay, the likelihood that these will be cashed in greatly increases. And with over $2 Trillion in debt incurred over those 18 months, that is an awfully big price to pay in a very short time.

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Troubled FDIC

My first article on Return of the Great Depression has gone live.

The FDIC announced last Tuesday that the number of troubled banks has risen from 552 in the third quarter of 2009 to 702 for the fourth quarter and that the fund may have to cover up to $20 billion in additional losses by 2013. If the economy worsens, this number could rise. The New York Times reports that Sheila Blair, FDIC chairwoman, said Tuesday that it was unlikely the FDIC would need to tap its emergency credit line with the Treasury Department, but she would not rule the possibility out.

The FDIC is losing money hand over fist. The only way they could possibly become solvent again is if the economy makes a remarkable recovery, soon. However, property prices are not rising and the only reason that foreclosures aren't still dumping on the market is that banks aren't kicking people out of their homes when they don't pay their mortgages. When you add the coming Commercial Real Estate mortgage crises to all this, it doesn't look good.

Banks are failing one after another and the FDIC covers the deposits. They have asked financial institutions for advance fees to stay afloat, but are running low again. And that well can only be dipped once. Once the fees are paid, they are paid. Now the only thing left for it to do is go to the Treasury, and the FDIC doesn't operate with a guarantee that the Treasury will back it. Personally, I don't see the Treasury turning them away, given the uproar that such an action would cause.

One has to wonder, in the end, how much this will cost. I'm curious to find out, if when all of this is over they figure out that Federally insuring the deposits of bank customers allows banks to take on more risky positions, resulting in a greater possibility of going bust. Or will they just keep scratching their heads.

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