Loading ...
« Previous — Next »
A Trillion Dollars Put In Prespective
25 September 2008The M1 money supply is the amount of liquid money in the economy. If you added up all bank deposits, wallets, cash registars that would represent the M1.
The M1 is $1.39 Trillion dollars, the “ballout” is 70% of the liquid cash floating about our country.
The M2 money supply includes time deposits, certificates of deposits etc. It is about 7% of our gross domestic product. The M2 is $7.72 Trillion. The ballout is 13% of the M2.
The Gross Domestic Product (GDP) is an attempt to measure the size of our economy, the GDP is $14.31 Trillion. The ballout is 7% of the GDP.
This is by any measure a sum of money that likes of which have never been seen in the history of Government intervention.
Where is the money going to come from? Easy, it can’t be borrowed, the Treasury does not have a bank account with that sum, we will have to print it.
Essentially increasing the M1 by 75%.
What does this mean to you and me? The value of the dollar against other currencies which had been improving will lose ground again. All imports will become more costly, such as oil and cars. All Chinese imports as all imports will increase.
Foreign companies will continue to buy American companies. There will be a run on American assests as Amercia goes “on sale”.
Allow me to value the $1 Trillion slightly differently.
President Bush, Chris Cox, Barney Frank, Chris Dodd, four men who were supposed to be watching.
$1,000,000,000,000 / 4 men = 250,000,000,000 each.
Running for President, a once in a lifetime experience, cost of your neglect, priceless.
I don’t know what is the right thing to do. I revolt at the prospect of this massive transfer of funds, no this sheer invention of wealth out of thin air.
This created wealth is underwritten by you and me, the faith backing this wealth creation is the faith the rest of the world has in the American spirit to pull it out. That we are sooooo big we can’t fail.
It’ll take months and possibly years to truely find out what caused this. I suspect Governmental monkeying with the fundamentals of credit. The most basic of which, don’t lend money to people who do not have a reasonable expectation of a sufficient future cash flow to pay it back.
Does America have a reasonable expectation of a sufficient future cash flow to pay this back?
Those in Congress who want to amend the plan have a responsibility to every American workers and saver to come up with a solution. Just saying they don’t like the one on the table isn’t enough.
Some wise market sources, here and in London, are suggesting that the federal government should take preference stock in rescued institutions when it buys their subprime paper. That way the taxpayers would get good money back, ahead of the common stockholders, if and when these institutions then recovered. It’s an idea worth a look.
We are facing a massive financial implosion as a result of a huge debt bubble. Three times in modern history a major economy has faced this kind of situation. In America, 1929, and in Japan, 1989, the authorities failed to address the problem quickly and comprehensively. They tried to muddle through and get by using the old rules. The results? Japan has suffered 20 years of stagnation, including several recessions. Jobs and incomes suffered. Homes and shares are still down by maybe two-thirds. The U.S. economy in the 1930s fared even worse. Wall Street fell about 90%, from peak to trough, while the economy suffered a terrible depression lasting a decade. No one won.
Corporate oversight ultimately resides with the shareholders, they elect a Board of Directors to represent their interests. Clearly in my mind, these Boards of Directors failed. Epic failure. BODs are protected by insurance and the companies they serve. Unless criminial activity can be found I doubt they will suffer, with the exception they won’t be asked to serve on any other boards.
Where the Government could help is by increasing transparency of the Boards of Directors and making them more accountable to the shareholders.
.
No comments yet