The FDIC cleaned up another failed bank chain and three smaller banks on Friday at an “estimated” cost of 1.1 billion. It’s an estimated amount since the Feds needed to guarantee billions of commercial loans that remain on the books as the assets transfer to the new owners. The watchdog agency created by Congress to monitor the banks estimates that nearly half of all commercial loans are currently under water. These are the “good” loans, not the ones that have already failed but unlike home mortgages these loans must be renewed every five years or so and if they are underwater at renewal time, they default.
The spreading defaults create more unemployment of course and it is becoming a way of life for many who find their jobs are gone forever. By April some 2.7 million will lose unemployment if Congress doesn’t approve yet another extension. As the economy continues to spiral down, the states continue to have revenues fall short of projections, lower and lower projections.
As it appears that stimulus money will not be continued, the governors of the states are getting panicking. The cuts they’ve already made are hurting their local economies and less people working means less sales and income tax. Lower incomes translates into falling real-estate prices and less tax revenue and draconian cuts in local government. Then you get another round of cuts from the state and it feeds back again.
The Tea Baggers want no government as long as their benefits aren’t cut. They say government doesn’t create jobs, private business does, but how will that happen with all the jobs going to India and China. The service sector can’t sell service to people whose jobs are gone. The only thing keeping the service sector going is selling to the government or its employees. The retail sector is selling Chinese goods to people who are either working for the government or getting unemployment from the government.
Without China providing goods on credit and the government printing the money to buy them with, the economy would grind to a halt. This is a bubble that cannot last. Past bubbles were single sector bubbles. Savings and Loan, Dot com, Enron, real-estate, stock market or credit defaults, as these bubbles popped, it all consolidated into one big bubble.
China could revalue their currency at anytime and it would be the end of the US economy as we know it. Starting over with no manufacturing base, crumbling infrastructure and a worthless currency is a challenge that not insurmountable, but it will be a rough ride for a generation at least. www.prairie2.com