US financial market bailout tab hits $4.7 trillion

WASHINGTON – The federal government has devoted $4.7 trillion to help the financial sector through its crisis, a level of assistance equal to about one-third of the overall U.S. economy, a watchdog report said Monday.

Under the worst of circumstances, the report said, the government's maximum exposure could total nearly $24 trillion, or $80,000 for every American.

The figures are part of a tough new quarterly report to Congress from special inspector general Neil Barofsky, who accuses the Treasury Department of repeatedly failing to adopt recommendations aimed at making one component of the government financial rescue effort more accountable and transparent. (more)

Rep. Grayson VS. Bernanke

Global Exposure in Financial Derivatives Surpasses One Quadrillion Dollars (Update)

When I posted the lowest responsibly sourced figure for global exposure in financial derivatives, $592 trillion, published May 19, 2009 by the Bank of International Settlements, all sorts of hoodoo apologists for Obama, Geithner, Summers, and Goldman Sachs crawled out the woodwork to claim that this figure is ridiculously exaggerated, there's really nothing to worry about, it's just a few bucks, and so on.

All the same hoodoos unfailingly claimed that it's stupid to consider worst-case scenarios when you calculate risk, because...

They have learned absolutely nothing from the ongoing financial meltdown which annihilated some of the oldest and largest investment banks in the world, and plunged the global economy into an almost vertical downturn. (more)

Are Banks Really on the Mend?

You can rest easy today… the financial crisis is over.

CIT Group, the new epicenter of systemic financial risk, got thrown a lifeline this week from its bondholders. As we reported Friday (link), the company needed $3 billion — fast — in order to stay afloat. It was rightfully denied a government bailout, but was able to strike a last-minute deal with holders of its debt. Of course, the market rejoiced… the S&P 500 rose 1.1% yesterday largely on the news.

But again, we’re calling the market’s bluff. Anybody read the fine print of this deal? The loan was secured by “substantially all unencumbered assets.” That lawyer talk means CIT will have no collateral left over for a similar deal in the future. What’s more, the company will have to pay 13% annually on the $3 billion loan… no small order. (more)

What's the Biggest Bargain In Commodities?

Biggest Bargain... is natural gas says Sean Brodrick...natural gas prices have been driven lower by over-supply & weak demand recently, also US liquid natural gas imports have more than doubled from Nov through April, & huge initial production rates in shale have added to supplies... but longer-term "I think that more U.S. buses, trucks and cars will run on natural gas. So it could be a very good play for the long-term"... (more)

Unlimited Debt is Likely to Lead to Unlimited Consequences

The world today seems to be spinning faster on its axis than ever as humanity scrambles to stay afloat in a world drowning in debt. It all seemed like such a good idea back in the day, as the credit-based US economy seemed to create prosperity out of thin air for decades. The economic alchemists explained that the more we consume, the more the economy will prosper. And because of easy and abundant credit, we didn’t have to pay until later!

Unfortunately, later has arrived. Growth built on the sandy foundation of debt-based consumption (instead of saving and investment) was fun while it lasted. But now the economic party glass has been filled to overflowing with debt, and we are all getting wet. The great global debt party must now be wound down and cleaned up, but no one seems willing to face the inevitable hangover. The US has more than doubled its debt burden, relative to GDP, since the 1980’s and the consequences are beginning to crash the party. (more)

The coming government debt default

We have always assumed that governments would surreptitiously default on their debt via inflation, but recently we've come to the conclusion that a direct default is a distinct possibility. Here's why.

Under the current monetary system there is no limit to how much debt a government can take on, provided that the debt is denominated in its own currency. The reason is that the central bank stands ready, willing and able to be the bond-buyer of last resort, and the central bank's pockets are infinitely deep (there is no limit to the amount of new money that the central bank can create). As a result, if it chose to do so the government could continue to issue new bonds until the currency became worthless. At the point where the currency had lost almost all of its purchasing power the surreptitious default would essentially be complete because any debt denominated in this currency would be almost worthless. (more)