Tuesday, November 18, 2008

Picking up the Tab

Sometimes when people go out to get drinks they end up having a little too much fun and lose track of how much they've spent; their bar tab. This year we've gone on a spending spree to try and deal with our current financial crisis. Let's see where our tab stands as of this week:

Federal Reserve

(TAF) Term Auction Facility - $900 Billion
Commercial Banks - $99.2 Billion
Investment Banks - $56.7 Billion
Loans to buy ABCP - $76.5 Billion
AIG - $112.5 Billion
Bear Stearns -$29.5 Billion
(TSLF) Term Securities Lending Facility - $255 Billion
Swap Lines - $613 Billion
(MMIFF) Money Market Investor Funding Facility - $540 Billion
Commercial Paper Funding Facility - $257 Billion
(TARP) Treasury Asset Relief Program - $700 Billion

Automakers - $25 Billion

(FHA) Federal Housing Administration - $300 BIllion

Fannie Mae/Freddie Mac -$350 Billion

Total cost for this is at $4.284 Trillion. That's much greater than the inflation adjusted cost of WWII by over $600 Billion. This is just for what we've spent on the financial crisis, this does not include our regular budget deficits which are exploding.

We are not using this money to protect our country in a war. We're using this money to try to help investment banks that made terrible investment decisions.

Would things be bad right now if we were not protecting the banks? Yes, they'd be horrible. Home prices would be collapsing, the stock market would have been decimated, the bond market would be falling, and our currency would be getting crushed. Unemployment would be very high and Americans would have to do the unthinkable: stop spending and start saving.

It would probably be bad for about 24-36 months and with the proper leadership home prices, the stock market, and our currency would find a bottom, and we could begin to rebuild the country with a new focus toward production and saving. We could begin to move toward exporting goods to the rest of the world in receipt for what they send us.

I've spent the last four years studying under some of the most brilliant minds in macro-economics. Those economists over a year ago had a clear vision of the bank failures and economic collapse we are experiencing today based on previous decisions/mistakes made by our leaders.

At the time they could not see what would come next because they could not see the response our leaders would have to the future crisis as it unfolded. It is now unfolding and our leaders have left no doubt in any one's mind how they plan on handling our current economic trouble based on their actions over the past 60 days. So what are those same economists saying now?

They are advising putting together a plan on physically removing yourself from this country if necessary. That sounds as ridiculous now as it did a year or two ago when they explained why we would be experiencing the economic troubles we are now.

Please understand that there is no longer going to be a very rough landing for our country. It is going to be destroyed, decimated. The decisions being made today are going to turn our country into a wasteland. The American public is going to be wiped out, and it's going to be an absolute tragedy.

A friend of mine purchased physical silver for the first time yesterday. He spent the afternoon calling around to local precious metal dealers. Time after time they told him that they were no longer planning on being involved in the silver business. His first reaction was that it was because the demand dried up due to the price falling so sharply over that past few weeks.

"Not at all," was their reply. They could not find silver anywhere, and when they did receive it there was an order there waiting for its arrival. He decided to call a national bullion dealer and make his purchase over the phone and have it shipped to him. His wait time? 3 months. Many dealers are being forced to push back their delivery dates to March of 09'.

Three major banks currently have 80% of the ENTIRE silver short position on the COMEX. If a large number of investors decided to take physical delivery over the next 60 days the COMEX would default on its silver contracts. Will that happen? Maybe, maybe not. But it'll sure get interesting if it does.

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