Saturday, January 24, 2009

The scariest chart ever

East Coast Economics is "currently doing some research on the (likely) Treasury bubble, and the charts I’m coming across are nothing but scary - one more so than the other. Check out the following which shows the [dollar] amount borrowed by US banks from the Fed through Dec 2007; the spike marks the Savings & Loan Crisis at the end of the 1980s with borrowing maxing out at $8b..."

1919-2007 (Y-axis scales to $10B)

"Now take a look at the following chart. It is the same graph as above, but updated through the beginning of November ‘08."

1919-2008 (Y-axis now scales to $800B)

"This might be less scary if the Fed wasn’t creating money out of thin air and at the same time accepting assets of questionable - and deliberately undisclosed - quality as collateral from banks. As it stands, I am not surprised that 10 year CDS on US Treasuries are above 60bps (high of 72bps at the beginning of December vs. a pre-08 historical average of 2bps)."

Even worse, those figures do not include the financial support the federal government has extended to Fannie Mae and Freddie Mac.

"Although not included in the figures reported by the government, the U.S. government has moved to more explicitly support the soundness of obligations of Freddie Mac and Fannie Mae, starting in July via the Housing and Economic Recovery Act of 2008, and the September 7, 2008 Federal Housing Finance Agency (FHFA) conservatorship of both government sponsored enterprises (GSEs). The on- or off-balance sheet obligations of those two independent GSEs is just over $5 trillion.... The government accounts for these corporations as if they are unconnected to its balance sheet. The U.S. Treasury contracted at the inception of the conservatorship to receive US$ 1 billion dollars in senior preferred shares, and a warrant for 79.9% of the common shares from each GSE, as a fee to fund, as needed, up to US$ 100 billion total for each GSE (in exchange for more senior preferred stock), in order to maintain solvency and adequate capital ratios at the GSEs, thereby supporting all senior (normal) liabilities, subordinated indebtedness, and guarantees of the two firms. Some observers see this as an effective nationalization of the companies that ultimately places taxpayers at risk for all their liabilities..."

Let's build on those charts to see the growth of unfunded liabilities from entitlement programs (e.g., Social Security, Medicare) since 1940.

The Y- (vertical-) axis of this graph dwarfs the second chart since the total amount of these doomed Democratic "social programs" amounts to around $55 trillion!

This chart represents the U.S. federal debt as a percent of GDP (Gross Domestic Product, the sum total of all goods and services produced in the U.S.). Even before the Obama Porkapalooza stimulus package, the graph depicts the explosion in debt that will be left for our children and grandchildren to work off.
The full faith and credit of the U.S. monetary system is at risk because of interference in the free market by liberals.

From The Community Reinvestment Act's social engineering; to threats by Andrew Cuomo and Janet Reno to shut down banks that didn't meet fabricated underwriting standards; to the rape and pillage of Fannie Mae and Freddie Mac... all were orchestrated by Democrats under the guise of "helping the little people."

Government interference in free markets always distorts those markets and frequently leads to catastrophe. The Soviet Union, North Korea, Zimbabwe, and even the United States now provide ample evidence that less government interference is needed, not more.

But yes, by all means, let's nationalize health care! What could possibly go wrong?

Update: Milton Friedman's co-author ("A Monetary History of the United States"), 93-year old Anna Schwartz, says the Fed can avoid a depression by printing more money to buy distressed mortgages.

Update II: More on the phony stimulus package, also known as Porkapalooza: "You know, I'm concerned about the size of the package. And I'm concerned about some of the spending that's in there, [about] ... how you can spend hundreds of millions on contraceptives... How does that stimulate the economy?"

Hat tips: Todd Sullivan and RIA News Focus. Linked by: Rick Moran at American Thinker, Gateway Pundit and BizzyBlog. Thanks!

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