Tuesday, February 2, 2010

Juggling Eggs

President Obama has proposed recycling 30 billion TARP dollars from the big banks into small business loans. The Republicans are outraged that the government is putting money into community banks for lending and not applying it to the debt they left behind. The TARP was supposed to unfreeze the credit market and of course it has not. Every Friday more small banks are seized as insolvent. Last week’s batch included six bank chains and will cost about two billion to dispose of.

The FDIC is predicting they will spend at least 100 billion by the end of this year cleaning up the first banking collapse of the New American Century. A brand the Republicans so smugly attached to it when it looked like their empire would never end. Indeed if you are part of the 1/10 of one percent at the top you still doing just fine. Rank and file Republicans that once enjoyed a six figure income and now have none are angry and confused, even more than normal.

Back to that debt the Republicans have left behind; Congress has authorized another two trillion that they hope will last past the election. The debt has already passed 12 trillion on its way to 14 trillion by year’s end and is a ticking bomb in its own right. Not that the amount is unmanageable but that the Bush Crime Family has replaced much of the long term bonds with 90 day notes. Clinton had replaced all the short term notes will ten year bonds with the intention that they would be paid off by the end of President Gore’s second term. That would make sure that social security would not be a problem as the baby boomers began to retire.

Tomorrow’s announcement of Treasury’s bond re-issue auction for next week is expected to drive the stock market either up or down (nobody knows which) The government has been selling its debt so cheap in the last couple of years that they have in effect been making money as people are paying more than face value for short term notes. If this were to change it could easily add another 500 billion to the Federal budget without interest going above the normal rate. Higher rates like we’ve seen in the past could put the amount for interest past a trillion.

It would become necessary to sell more bonds just to keep up with the interest, of course that would quickly put everything into a tailspin. The money simply doesn’t exist. Obama is juggling eggs and the Republicans are throwing them. www.prairie2.com

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