Collapse

On the brink of disaster

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The three newbies – the term auction lending facility, the primary-dealer credit facility, and the term securities lending facility – total more than half-a-trillion dollars, with more if needed. Much of this money is available not only to commercial banks but also to investment banks, which normally aren’t allowed to borrow from the Fed.

How can the Fed afford this largesse? Easy. Unlike a normal lender, the Fed can’t run out of money – at least, I don’t think it can. It can manage monetary policy while in effect creating banking reserves out of thin air and lending them out at interest.

That’s how the Fed reported a $34 billion profit in 2006, the last available year, of which $29 billion was sent to the Treasury. The Fed can even add to its $800 billion stash of Treasury securities by borrowing more of them from other big players.

Then there’s the Treasury. In March the Treasury – which failed this past winter to get private firms to establish a $100 billion “superfund” (please, no giggles from people who equate the term with Love Canal) to keep things called “structured investment vehicles” from having to sell their holdings in a bad market – unleashed Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500) and the Federal Home Loan Banks to buy hundreds of billions of dollars of mortgage-backed securities.

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Subprime crisis hits governments

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THE SUBPRIME mortgage crisis that pushed homeowners into foreclosure and forced the Federal Reserve to bail out investment banker Bear Stearns has also sent state and local governments across the country scrambling to refinance municipal bonds before they are hit with exorbitant interest rates.At the center of the storm are long-term variable-interest bonds known as “auction-rate securities.” Unlike traditional fixed-rate bonds, the interest rates on these securities are reset every 7, 28 or 35 days through an auction process.

Historically, the rate paid has been less than on traditional bonds, making the national $160-billion auction-rate market a reliable source of cheap financing.

But that market has collapsed in the past two months, sending interest rates climbing. As a result, California, Richmond, the Bay Area Toll Authority, the East Bay Municipal Utility District and Sacramento County are among countless government agencies forced to restructure their bond debts.

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Wall Street fears for next Great Depression

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Wall Street is bracing itself for another week of roller-coaster trading after more than $300bn (£150bn) was wiped off the US equity markets on Friday following the emergency funding package put together by the Federal Reserve and JPMorgan Chase to rescue Bear Stearns.

One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed’s emergency funding procedure was first used in the Depression and has rarely been used since.

A Goldman Sachs trader in New York said: “Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we’re just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow.”

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Foreign investors veto Fed rescue

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As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures.

Asian, Mid East and European investors stood aside at last week’s auction of 10-year US Treasury notes. “It was a disaster,” said Ray Attrill from 4castweb. “We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed.”

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Empire on the Brink: Republicans and “Free Market” Zealots Bring Disaster to America

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March 13, 2008
By PAUL CRAIG ROBERTS

March 12. Crude oil for April delivery hit $110 per barrel. The US dollar fell to a new low against the Euro. It now takes $1.55 to purchase one Euro.

These new highs against the dollar are the ongoing story of the collapse of the US dollar as world reserve currency and corresponding collapse of American power.

Each new decision from the insane Bush regime pushes the dollar a little further along to oblivion. The same Fed announcement that boosted the stock market on March 11 sent the dollar reeling and the price of oil up. The Fed’s announcement that it and other central banks are going to deal with the derivative crisis by monetizing $200 billion of the troubled instruments signaled more dollar inflation.

Read moreEmpire on the Brink: Republicans and “Free Market” Zealots Bring Disaster to America

How Low Can The Dollar Go? Zero Value

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The corporate controlled media is finally starting to talk about the economic problems that the alternative media and assorted precious metals advocates have been talking about for years now. We are facing a potential inflationary depression. Independent estimates of the M3 money supply show that we are seeing an annual increase in the M3 money supply by around 16 to 17 percent. The Federal Reserve chose to stop producing this report right around the time when these figures began going parabolic on their chart showing a massive increase in the money supply. An increase in the money supply results in a devalued currency and that’s one of the primary reasons why we are seeing the price of gold flirt with the $1,000 an ounce mark and silver explode past the $20 an ounce mark. The U.S. Dollar Index is now treading water around the 72 to 73 mark and it is becoming increasingly clear that the role of the world’s reserve currency is shifting from the U.S. Dollar to the Euro. Some ask how low the U.S. Dollar could go and that answer is simple. The U.S. Dollar could go to zero because it is a fiat currency with no real tangible backing. Every fiat currency in the history of man has been replaced or collapsed and there is nothing fundamentally different between the U.S. Dollar and these other fiat monetary systems of the past.

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The Bush Bust of ’08: “It’s All Downhill From Here, Folks”

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On January 14, 2008 the FDIC web site began posting the rules for reimbursing depositors in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) is required to “determine the total insured amount for each depositor….as of the day of the failure” and return their money as quickly as possible. The agency is “modernizing its current business processes and procedures for determining deposit insurance coverage in the event of a failure of one of the largest insured depository institutions.” The implication is clear, the FDIC has begun the “death watch” on the many banks which are currently drowning in their own red ink. The problem for the FDIC is that it has never supervised a bank failure which exceeded 175,000 accounts. So the impending financial tsunami is likely to be a crash-course in crisis management. Today some of the larger banks have more than 50 million depositors, which will make the FDIC’s job nearly impossible. Good luck. – Mike Whitney

Read moreThe Bush Bust of ’08: “It’s All Downhill From Here, Folks”