Tuesday, September 14, 2010

The cost of the Bail-out and the Federal Reserve

One of the challenges of the daily news cycle is that it tends to be the tail wagging the dog.  In the big picture, it is itself a statement of the fundamental and structural issues with so much power aggregated in the federal government and its most powerful enabler, and that is Wall Street and the Federal Reserve.

Will bailing out the large banks and enabling the Federal Reserve bankrupt the nation?

Since it is impossible to continually track and understand all the machinations of an institution grown so large that its tentacles extend far into virtually every aspect of human activity in its quest to tax and feed itself, journalism as crafted merely swings its attention from one story to another.  In lapdog fashion the rest of the media follows suit.

But there is one central story that for the last 3 years, and arguably for the last 40 years, really does not deserve to leave the front page.  And that is the meanderings of the Federal Reserve.  Find a defining moment in the video below:

The federal Reserve's Balance Sheet continues to grow at horrific rates.  Where is it spending that money?

Many pundits suggest it, along with Wall Street, is propping up stock prices, and using every tactic, legal or not to do so.

The plain fact is that the banks that were bailed out remain bankrupt.  The market is attempting to reprice those assets, that is commercial and residential real estate, and spending to avoid that readjustment is reaching beyond $10 trillion.  US GDP is approximately $14-15 trillion.  Does anyone get the picture yet?

Does any sane person believe this economy will turn around and again begin to grow without those toxic assets being repriced so a market can again form?  Does any sane individual actually believe that the roughly $600 trillion in 'off-Balance Sheet' derivatives do not have a great deal to do with all the bail-outs?  The Daily Bail-Out remains focused on only this topic.

That the resulting cost to every person in the world (the American dollar is the world's currency) will be significant as the Fed prints more money must be examined.  If we have economists who deny that this is true, then we need to hear why they believe it. Here's a Bloomberg video:

Watch the full episode. See more Need To Know.

The moral hazard, now turning into the mother of all economic hazards, of not allowing Wall Street to go bankrupt, may bankrupt the nation.  It really is that simple.

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