Saturday, September 27, 2008

$700 Billion? Try $4 Trillion

I am in favor of the "Paulson plan".  

That does not mean that I believe for 1 SECOND that the U.S. Federal Government will be off the hook at $700 Billion - I believe the number will be at LEAST $2.5 Trillion and perhaps just over $4 Trillion (more on how I arrived at that range in another post, but suffice it to say that I do not believe housing has bottomed).

The U.S. financial system AT THIS MOMENT is a fractional reserve banking system (If you are not familiar with this, this would be an excellent time to click this link and become better informed).  If we do not do something to inject massive liquidity into the system RIGHT AWAY, many companies will simply be unable to make payroll in a couple of weeks, ATM cards will cease to operate at most banks, etc... As American's become less and less confident in the banking system they will continue to withdraw their deposits - a la Washington Mutual.  Just imagine a run on Wachovia and Citibank... it would not take long before Bank of America and J.P. Morgan Chase were in difficulty... and they handle MOST of America's corporate payroll.  With most American's living paycheck to paycheck with less than 3 days supply of food in their homes... (with the notable exception of the Mormons who are required to maintain a year's supply of food in their home.  That tradition is looking more and more appealing all the time...)  well, the response of the masses to this might just a bit more than disconcerting.  Put that in your pipe and inhale deeply...

Good Luck!

Mentatt (at) yahoo (d0t) com


3 comments:

Bureaucrat said...

Going from the present $10 trillion in national debt to $14 trillion when the rest of the world will have to fund this nonsense is impossible to digest. Either it will be found that the banks aren't as impaired as the pretend to be (I hope) or the country will come to a complete halt anyway trying to pay 4% on $14 trillion. Either way, passing the Paulson plan is no solution. Did anyone think we were gonna get out of this without some serious pain? You're kicking the can down the street, Jeffers.

Anonymous said...

4% on 14 Trillion?

Try 12% or 18% or 30% on that 14 Trillion when USD reserve currency status evaporates.

And how about $500/bbl oil plus? And that is before the global geological peak occurs.

Greg T. Jeffers said...

Bureaucrat:

Kicking the can? More like whistling past the graveyard.

I will discuss the numbers soon. Never said it wouldn't be all balled up...