- The Bush administration will be mailing out another batch
of "stimulus" checks in the very near future. There's no way
around it. The Fed is in a pickle and can't lower interest rates for fear
that food and energy prices will shoot to stratosphere. At the same time,
the economy is shrinking faster than anyone thought possible with no sign
of a rebound. That leaves stimulus checks as the only way to "prime
the pump" and keep consumer spending chugging along. Otherwise business
activity will slow to a crawl and the economy will tank. There's no other
- The daily barrage of bad news is really starting to get
on people's nerves. Most of the TV chatterboxes have already cut-out the
cheery stock market predictions and no one is praising the "impressive
powers of the free market" anymore. They know things are bad, real
bad. A pervasive sense of gloom has crept into the television studios just
like it has into the stock exchanges and the luxury penthouses on Manhattan's
West End. That same sense of foreboding is creeping like a noxious cloud
to every town and city across the country. Everyone is cutting back on
non-essentials and trimming the fat from the family budget. The days of
extravagant impulse-spending at the mall are over. So are the "big
ticket" purchases and the "go-for-broke" trips to Europe.
Consumer confidence is at historic lows, disposal income is a thing of
the past, and all the credit cards are at their limit. The country is drowning
in red ink.
- Something has gone terribly wrong with the economy, but
no one knows what it is? In the last three months bank credit has shrunk
faster than any time since 1948. The banks aren't lending and people aren't
borrowing; that's a lethal combo. When credit-creation slows, the economy
falters, unemployment rises and the misery index soars. That's why Bush
will have to mail out more stimulus checks whether he wants to or not;
his back is against the wall. He'll try to make it look like the economy
is still breathing on its own and just needs a spell on the respirator
before resuming its normal activities. But Bush is wrong; we've reached
Peak credit and the blood-transfusions won't work anymore. The vital signs
have shut down and rigamortis is already setting in. Our goose is cooked.
- MORE BANK RUNS
- On Friday, after the market had closed, the FDIC shut
down two more banks, First Heritage Bank and First National Bank. Two weeks
earlier, regulators seized Indymac Bancorp following a run by depositors.
The FDIC now operates like a stealth paramilitary unit, deploying its shock
troops on the weekends to do their dirty work out of the public eye and
at times when it will least effect the stock market. The reasons for this
are obvious; there's only one thing the government hates more than seeing
flag-draped coffins on the evening news, and that's seeing long lines of
frantic soccer moms and blue-collar working guys waiting impatiently to
get what's left of their savings out of their now-deceased bank. After
all, flag-draped coffins merely indicate that we're losing a war, but lines
at the bank prove that the system is broken. And the system is broken,
that's why people are depressed and confidence is waning.
- Banks-runs are a shock to the collective psyche; they
demonstrate that the stewards of the system are imcompetent and have made
a mess of things. When depositors see a bank run they realize that their
hard-earned money is not safe. That's why they get edgy and cut back on
their spending. When their confidence wanes, it extends to the whole system.
Suddenly they start questioning everything they once took for granted.
They become skeptical of the institutions which, just days earlier, seemed
rock-solid. That's why bankers surround themselves with marble columns,
vaulted ceilings and lofty-sounding titles; to maintain the illusion of
security while masking the truth, that fractional banking is the biggest
scam in history. It relies on the "greater fools" theory which
assumes that bankers can be trusted to only create credit when it is backed
by sufficient capital. But it is not true. The banks have put us all at
- Bank runs are a direct hit on the foundation of the free
market system. Unchecked, the tremors can ripple through the entire society
and trigger violent political upheaval, even revolution. The public may
not grasp their significance, but everyone in Washington is paying attention.
They take it seriously, very seriously. It is a sign that the system is
disintegrating and it may be irreversible.
- SABER-RATTLING AT THE FDIC
- An article in the San Francisco Business Times said that
the FDIC is worried about the reporting on Internet blogs. They'd rather
keep banking system's troubles out of the news. The publicity just further
undermines the publics confidence and spreads fear. Sheila Bair, chairman
of the Federal Deposit Insurance Corp., summed it up like this after the
run on Indymac:
- "The blogs were a bit out of control. We're very
mindful of the media coverage and blogs in controlling misinformation.
All I can say is were going to continue to stay on top of it. The misinformation
that came out over the weekend fed a lot of depositors' fears."
- Is that a threat? The cure for a failed banking system
is adequate capital and prudent oversight not threats to critics of the
system. That's balderdash. Commissar Blair apparently believes that bloggers
should be treated the same way as journalists in Iraq, who, if they veer
ever so slightly from the Pentagon's "the surge is a great triumph"
script, find themselves on the smoky end of an M-16 at some unmarked checkpoint
- If Blair wants people to take her seriously, she should
stop the paramilitary-type mothballing operations to shut down banks and
tell the American people the truth about what is going on. The banking
system is busted; Blair knows that as well as anyone. Now its time for
someone to accept the mantle of leadership, step up to the microphone and
tell the public what they really need to know:
- "My fellow citizens, we are embroiled in the greatest
financial crisis our nation has ever faced and we will have to take emergency
action to keep the entire system from melting down."
- How hard is that? But it won't happen, because everyone
in the administration has an aversion to telling the truth; it's like the
Devil and Holy Water. Besides, its easier to blame the bloggers, that harmless
subspecies that spend long hours pecking away at their keyboards in their
windowless 5' by 7' hovels.
- Bloggers aren't the problem; the problem is a system
that's collapsing from decades of abusive credit expansion creation and
insufficient capital. Now everyone is going to pay for the excesses of
- As the bank-runs increase, the FDIC will be forced to
admit the truth, that they don't have the resources to deal with a problem
this big. Currently, the FDIC has only $53 billion in reserves to guarantee
$4 trillion in total bank deposits. The entire system has a mere $267 billion
cash in the vaults. What a shabby way to run a banking system. Where's
the money going to come from when depositors start withdrawing their savings?
How will the FDIC deal with the ongoing deleveraging in the market which
is forcing more and more investors move into cash?
- No one knows. All we get is more prevaricating; more
smoke and mirrors, Bush assures us that "Our capital markets are functioning
efficiently and effectively." Nonsense. The markets are cratering
and the banks are toast. A blind man can see it. The FDIC is listing and
Blair knows it. Bush needs to cut the gibberish and tell the American people
the truth so they can prepare for the hard times ahead.
- P.T. PAULSON: "The the banking system is sound...
This is a very manageable situation."
- Last Sunday, sought Treasury Secretary Henry Paulson
tried to reassure the public that the banking system is sound, while bracing
people for more trouble ahead:
- "I think it's going to be months that we're working
our way through this period - clearly months. But again, it's a safe banking
system, a sound banking system. Our regulators are on top of it. This is
a very manageable situation."
- Paulson is like a broken record. Everything is always
hunky-dory. He is the consummate Wall Street investment sharpie; a bright
guy who could charm a hungry dog off a meat-wagon. But when it comes to
telling the truth; forget about it. You'd be better off listening to Bush,
which isn't saying much. The banking system is not sound nor is it well
capitalized. It is a corpse that's been propped up in the office hallway
next to the water-cooler so that everyone who passes bye gets a stifling
whiff of the decaying flesh. Still, the charade goes on. Still the lies
- If the rate of bank closures continues at the present
pace, by the middle of 2009 their will be restrictions on withdrawals.
Even now, if you go to your bank and try to withdraw $9,000 or $10,000,
it sends waves of panic through the entire building like a 5-alarm fire
that quickly engulfs the main exits. It's crazy. Tellers go scampering
around helter-skelter, and bank managers suddenly appear at the window
grimacing in pain and wringing the sweat from their brows.
- "Did you say $10,000, sir?" which is usually
followed by low moaning sounds and heavy wheezing.
- Journalist Bill Sardi summed it up nicely in an article
last week on lewrockwell.com titled "Could Your Bail Fail?":
- "The banking industry is walking on pins and needles,
hoping the bad news doesn't become a self-fulfilling prophecy that drives
bank depositors to demand withdrawal of funds en masse........ There is
a high likelihood the American banking system will fail, and you will likely
be the last to know. The more panicked you get, and withdraw funds, the
worse the implosion. In an effort to avert runs on the banks, will the
news media delay informing the public of the current dire situation, which
appears to be an inevitable system-wide banking collapse?
- What to do?
- So, while your bank still has money and can process your
checks, it may be time to pay down debts, pay quarterly taxes and mortgage
payments in advance, and think of having money outside of banks (gold,
foreign currencies), etc., before your money is inaccessible or even evaporates!
Don't think all your investments outside of banks are immune from all this
turmoil. For example, money market mutual funds, where Americans have invested
$3 trillion, are not covered by FDIC insurance (however, money market accounts
offered by banks are covered). Recent losses in some of these money market
mutual funds have caused some companies to rush to plug the losses. For
example, Legg Mason Inc. and SunTrust Banks Inc., recently pumped $1.4
billion each into its money market funds. Bank of America Corp. has injected
- As for your checking and savings accounts, recognize
you may have five different accounts in the same bank, but the FDIC only
insures individuals, not each account, up to $100,000. Putting your money
in different accounts in the same bank does not necessarily provide better
insurance for your deposits. (Bill Sardi, "Could Your Bail Fail?",
- Good advice, but if the whole system blows; we're all
in trouble. It's probably wise to have a back-up plan; like plenty of ammo
and a couple hundred pounds of seed potatoes. It could get hairy.
- FANNIE BAILOUT: "If they dumped these securities
on the market today, their value would go straight to 0."
- Most people are unaware of the fact that the new Fannie
Mae and Freddie Mac bailout package that was passed into law on Saturday,
provides Paulson with $300 billion of taxpayer dollars to shore up the
faltering mortgage behemoths. In order to accomplish this, the congress
increased the national debt by a whopping $800 billion sending it over
the $10 trillion mark for the first time in history. Naturally the congress
buried this little tidbit of information deep in the 600 pages of legislation.
It's clear that the administration is lying about Fannie and Freddie. They'll
need much more than the $25 billion infusion that Paulson is predicting.
That's why the national debt is ballooning. This is the biggest boondoggle
of all time and it's spearheaded by the "dueling windbags", Chris
Dodd and Barney Frank; both Democrats. Dodd's lengthly oratory on the floor
of the House on Friday nearly earned him a citation from the EPA for releasing
massive levels of toxic gas into the jet-stream and accelerating the rate
of global warming.
- So it's not just the Fed and the Treasury that are ruining
the system; the politicos are busy bankrupting the country, too. In fact,
the Fannie bailout could quite possibly be the last straw.
- It now looks like Obama has been anointed by Wall Street
(who are his biggest contributors) to revive the Resolution Trust Corporation
(RTC)--a morgue for dead banks---so that the investment giants can off-load
hundreds of billions in bad paper in one fell swoop and purge the system.
That will be the big "post election" surprise; another bone for
- The path ahead has never looked so uncertain. Still,
niether Paulson nor Bernanke seem at all upset by the riskiness of their
strategy or by the fact that the nation's economic future has been reduced
to a crap-shoot. The Fed has already spent more than $300 billion to prop
up the teetering banking system in the last year alone, plus another $29
(that was never approved by congress) to buy the toxic bonds from Bear
Stearns in the JP Morgan acquisition. Now, the Treasury has been authorized
by congress to buy an "unlimited amount" of Fannie and Freddie
shares at their own discretion. They are presently exchanging Fannie and
Freddie securities for US Treasurys, which means that the dollar is now
backed by dodgy mortgage-backed sludge for which there is no market. According
to Rep Ron Paul, "This is the asset (MBS) which now backs up our currency.
An asset that no one else wants. If they were to dump these securities
on the market today, the value of these stocks would go straight to 0.
But that is literally the asset that is behind our currency. It is a very
- None of congress's back-room maneuvering has anything
to do with "providing a lifeline for the struggling homeowner",
as Senator Dodd claims. That's all bunkum. The homeowner won't get a lick
of help from this bill. Its just another handout for the brokerage fraternity.
The country is putting its AAA credit rating on the line for same clatter
of carpetbaggers who created the mammoth equity bubble in the first place.
Now they are being rewarded for their criminal conduct. Also, Bloomberg
News notes that, "Sensible people are starting to question whether
the U.S. can hang on to its AAA credit rating. The prospect of an extra
$5 trillion or thereabouts leaking onto the U.S. government's tab from
Fannie Mae and Freddie Mac has spooked investors."
- America's AAA rating will vanish in a year. It should
be zero anyway. No one really believes the US will repay its debts. The
US bond market is just a glitzy imitation of casino roulette only the odds
are considerably worse.
- Our political leaders have engineered this whole farce
and are now speeding up the process by savaging the dollar. How long before
foreign creditors see through this ruse and dump their dollar-backed assets
on the open market? The hoax can't go on forever.
- Of course, some market analysts think the banking system
will make it through this rough patch, even though it is likely to take
a real pasting. Economics guru, Gary North, for example, expects a slightly
different outcome which he details in his latest article on Lew Rockwell's
web site "Ben Bernanke's Hush Money":
- "There is an enormous difference a literally
life-and-death difference between individual bank failures and a
systemic banking failure. I do NOT believe we are facing a systemic banking
failure. But we are facing more individual bank failures...
- Beginning in December 2007, the Federal Reserve System
has sold Treasury debt whenever it has increased its purchase of questionable
assets that it has bought from banks and large financial institutions.
It has unloaded about 40% of its holdings of liquid Treasury debt. This
has kept it from inflating the money supply at a dramatic rate. At some
point, it will run out of Treasury debt to sell to the general public in
order to offset the increase of its purchase of questionable assets held
by the financial system. At that point, the great inflation will begin.
This could be a year away. This could be a month away. All we know is this:
when the Federal Reserve system runs out of Treasury debt to sell, its
purchase of all assets will be inflationary. The banking system as a whole
is protected. What is not protected is the purchasing power of the dollar."
("Ben Bernanke's Hush Money", Gary North, lewrockwell.com)
- North makes a good point; when the Fed runs out of US
Treasuries, they'll have to rev-up the printing presses and monetize the
debt. That'll be doomsday for the dollar. When foreign central banks see
the greenbacks a-gushing like the blood from a harpooned whale; they'll
have to sell off their dollar stockpiles and take the loss. That will trigger
a period of hyper-inflation in the US. Everyone will pay for the excesses
of the few.
- The whole system has been rejiggered to serve the needs
of a few greedy bankers on top of the food chain. They could care less
whether the whole country blows up or not as long as they get their slice
of the pie. That's all that matters. Congress is just as bad. They abdicated
their most important responsibility by giving Paulson the authority to
take whatever money he needs to do whatever he wants. If that's their attitude,
then what do we need congress for? Let's just board up the House of Representatives
and send them all home. It would be a lot cheaper.
- The truth is, the big money guys have taken a wrecking-ball
to the financial system and have now moved on to the real economy. By the
time their done, we'll all be picking through the wreckage just to feed