Tag Archives: banking

Congressional Budget Outlook :: CBO

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Hold your hats folks as here are some of the forecasts for 2009 (link):

  • GDP falling by 2.2%
  • Slow recovery in 2010
  • > 9% unemployment by 2010
  • Decline in inflation (hmmmm… if monetary policy says anything this will reverse or at least eventually destroy the dollar)
  • Continued decline in housing prices
  • Decline in real consumption of more than 1%
  • Indeterminate on the financial system

And the best of all

$1.2 trillion dollar budget deficit for 2009*

*That doesn’t include the proposed stimulus package
*That amounts to 8.3% of GDP

So, we have an economy in decline, and digging a deeper and deeper hole to climb out of.  What I really want to know is how are we going to pay for 1) a 1.2T dollar deficit, and 2) a large fiscal stimulus package of a indeterminate size.

Let’s see our foreign friends have been purchasing our debt, which enabled us to essentially live off of their productive labor.  China for example is seeing a marjor reduction in exports, its economy is contracting, and eventually it is going to have to decide if it is worth supporting the American lifestyle at their own expense.  Presently, everyone is so intertwined I think there is a fear that if one jumps the house of cards falls down and we all lose.  However, is it possible for say China to pull out of the house of cards with minimal damage?  Is there a way they can reduce their exposure to US debt, and not have their savings collapse?  This is something I’d really like to know.

Seems to me that if they slowly shift some of their dollar reserves into commodities and other currencies SLOWLY, especially when there is increased demand they will be able to lessen their exposure.  The US import market is tanking, and has been tanking.  With unemployment increasing Bloomberg people are going to have a smaller income and will be forces to save thus hurting exporting countries.  This isn’t a US phenomena alone as Europe and frankly the rest of the world is contracting simultaneously, while being fed a mouthful of credit from central banks to re-inflate the bubble.  Last I checked it is very difficult to inflate a popped bubble.

Let’s take the latest number from Taiwan Bloomberg.  Their exports dropped by a record 41.9%.  We all know that Taiwan exports electronics, which have been a major boon ever since the technological revolution, which also saw a major hiccuup in 2000-2003.  So, this is confirmation of a major exporting taking a major hit.  There will be ramifications for the Taiwanese economy.

I can’t imagine that after the dust settles the world’s economies will look the same.  The sea of money will shift to where is sees the most opportunity and in its movement will tear apart the economies of many.

Here are a few more headlines on Bloomberg alone that tell a um telling story:

Fed Revives Discussion of Inflation Target to Counter Risk of Price Slide

ECB Expanded Balance Sheet by 36 Percent Last Year to Revive Bank Lending

Apartment Rents Fall, Vacancies Rise to Four-Year High on U.S. Job Losses

Shopping Center Vacancies in U.S. Approach 10-Year High as Stores Fail

Procter & Gamble Fights to Refinance as U.S. Borrowings Reach $2 Trillion

U.S. Banks Will Need to Raise More Cash in 2009, Meredith Whitney Writes

I’ll leave it at that, but what I’m seeing is RECESSION coupled with the Fed trying to stave it off through any means necessary, which is now including outright purchases of securities on the open markets.  Again we have no savings and are either monetizing debt or borrowing it from somewhere.  To do this will be disastrous to the dollar and our reputation as a solid financial center of the world.  Sure there are plenty of other economies in dire situations, but in the end who will come out with the heads up high and who will come out still in the sand?

Withdrawal Symptoms

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If my emotional barometer is any indication of where people’s minds are at the moment then I can only label it as coming down or recovering from a major hangover. It is the Sunday afternoon after a big night out sipping on your bloody mary to ease the pain.

We have been living on credit and tons of it.  At some point it becomes unsustainable and the house of cards tumbles down.  

Getting back to my analogy, think of drinking a ton of alcohol or coffee.  You keep wanting more and more when you finally get to a point where your body is completely dependent.  Any reduction in the drug will cause mild to severe withdrawal symptoms, any increase doesn’t do anything. 

This is what happens with credit expansion.  Too much and everyone goes on a spending spree with all the cheap money.  Take away the cheap money and people stop spending, jobs vanish, incomes decrease, and the previously incurred debt can’t be paid off.

So, instead of going through withdrawal you decide to take a lesser amount of the drug to make your hangover go away or slightly abate. However, you are still hungover. This pattern will continue until either you are completely free of the drug or your tolerance is now much lower enabling you to start increasing the amount as it now has a new profound effect as it did when you first started.  

It seems to me that we are in the post-crash hangover stage, but we aren’t completely free from the addiction.  We have taken a bit of the drug to ease the suffering.  The more of the drug we took the more likely we are to repeat the cycle.  We still need the drug to continue, otherwise we are going to feel like crap.  Hence, we still have a ways to go before we can recover.

If all goes as planned we will have a new President tomorrow and no longer will have to listen to the political banter at least for a while.  One piece of the uncertainty puzzle will be put into place, and we can focus on other issues.

In a NY Times article:

“We don’t know if it’s the end of the bear market yet, but it looks as though the bear has taken a nap,” said Sam Stovall, chief investment strategist at Standard & Poor’s equity research. “So investors are thinking, let’s enjoy a bit of a relief, both from the market’s lows and from the endless pre-election rhetoric.”

Other factors seemed to be playing into the rally as well, including a continuing round of coordinated interest rate cuts worldwide, the ongoing thaw in the credit markets, and the increasing resiliency of the markets to the daily drumbeat of bad economic news. The extreme volatility of recent weeks has calmed in recent days, though trading volume remained light.

Yes, the bear is taking a nap, but we are still very hungover and have taken a bit of the drug to help relieve the pain.  People haven’t completely capitulated and given up on equities.  They are hesitant yes, but still hopeful that things will turn around.

There is a major bear lurking around the corner and it isn’t just in the US.  They are giving birth around the world and China is no exception.  In a Financial Times article:

Wen Jiabao, China’s prime minister, warned that high growth was needed to maintain social stability as fresh evidence emerged on Monday that China’s economy was slowing quickly.

…

“We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development . . . and factors damaging social stability will grow,” he wrote in the magazine, Seeking Truth.

So, while equity markets recover mildly on noticeably low volume, bears are growling from afar.  Manufacturing is way down, consumer’s aren’t spending, banks still are reluctant to loan, major exporters are slowing.  I’d call this a worldwide slowdown of massive proportion.  We still have credit cards right?

What lies ahead…?

Recession, higher interest rates, massive inflation, higher commodity prices, continued decrease in housing, rising unemployment, and eventual devaluation of the United States dollar.  When will all of these things play out?  

My crystal ball has a few cracks, but for inflation to take hold we have to complete the current phase of de-leveraging and disinflation (which is bringing down prices).  Once this phase is complete all the newly created money will directly cause inflated prices.

Purgatory….

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Ever watched a sci-fi movie where the crew goes into stasis while they travel from one end of the galaxy to the other?  Ever contemplated Purgatory where heaven and hell meet?  

I feel as though this is a period of semi-consciousness awaiting judgement…  Last night I was catching up on some news online when I was watching the futures markets turning deeper and deeper shades of red.  The morning was locked limit down and then we had an immediate spike — DOWN.  However, the day is turning out to be mild in comparison to what may have happened.  

The reason I label this as purgatory is because I think we are either going to swiftly swing in one direction or the other.  Emotion is in control at the moment and perhaps irrational.  Once the herd stampedes watch out.  If people want cash watch out markets.  As I said in a earlier post we haven’t really seen an exodus or pure panic yet.  

The news from around the world is to be expected given the size of the credit contraction.  

I think we may see a rally, perhaps not today, but maybe next week as people see bargains.  News will continue to be increasingly gloomy, spreading a shadow around the world.  The contraction will not abate and people in a moment of fear and panic will sell.  Hedge funds will continue to implode sending equity prices down further.  Mutual funds will have to begin liquidating.  The dollar will roar ahead.  

Only problem is that we have never seen such a huge monetary expansion. Once banks decide to start lending again that money they are now hoarding and using to purchase other banks will flow into the system.  Bam!!@! huge credit expansion at a completely unsustainable rate, and thus hyperinflation.  Equities may rebound, but given the recession they will probably be somewhat stagnant as the new capital investment will take time to be realized.  Meanwhile, gold, oil, and food will goto the moon as the dollar plummets.  Interest rates will also soar as the reality of our debt burden takes hold alongside major inflation.  People will want to be compensated for holding a worthless and bankrupt currency.  

My only real complaint with this prognostication is strength in the dollar.  I’m having a hard time comprehending or even believing that this dollar rally will continue.  It is a flawed currency, and has no basis for strength.  Then again what fiat currency really has any value?

 

my2cents

Banks are lending — NOT

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The theory was beautiful (well in the abstract)…

Give troubled banks more credit and they will lend it out and the economy will stop its free-fall.  Now, that sounds like utopia to me.  Create credit and we will all be saved for unemployement, slowing production, decreased consumer spending, and rising interest rates.

HOLD ON… let’s put a toe back on the plane of reality…

Banks aren’t lending much more than before eventhough they are being handed gobs of cash.  Why wouldn’t banks lend out free money?

What if…

  1. there aren’t any borrowers worthy of getting loans? — Let’s say during a recession!  Oh right the economy slows WAY… DOWN.
  2. there are more troubled banks and unknowns on banks balance sheets.
  3. banks are holding the cash knowing full well that there is another storm on the horizon

I didn’t pull this out of thin air like the Fed does with money.  An article in the NY Times starts with

The banks aren’t lending. And despite what you have heard, they probably won’t start just yet.

Sorry Paulson your plan isn’t working.

“Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital,” Mr. Paulson said in a statement Monday. “And we expect them to do so, as increased confidence will lead to increased lending. This increased lending will benefit the U.S. economy and the American people.

Of course, with a $250 billion injection into America’s biggest banks — not all of which were troubled — Mr. Paulson has a political sales job to do. And no requirements to lend were attached to the money. (Some banks may use the money to buy others.)

But Mr. Paulson is making a big assumption about confidence, because until the real economy recovers — which could take more than a year — lending to Main Street is unlikely to return rapidly to normal levels.

“It doesn’t matter how much Hank Paulson gives us,” said an influential senior official at a big bank that received money from the government, “no one is going to lend a nickel until the economy turns.” The official added: “Who are we going to lend money to?” before repeating an old saw about banking: “Only people who don’t need it.”

Again banks don’t want to lend into a very uncertain future.  They want confidence in the economy — there isn’t any and the opposite is occurring.  People are spending less as they become more concerned about the safety of their jobs.  Most Americans have no savings cushion to fall back on.

Roger Bootle and Jonathan Loynes of Capital Economics in London wrote a sobering note on Monday about the cash infusions into European banks that may apply here as well. “We expect rising loan defaults and further asset write-offs over the next couple of years to practically wipe out the governments’ capital injections, leaving banks back at square one,” they said. “Given that banks will need to increase their capital in order to expand their lending book, these measures on their own are unlikely to prevent bank lending from stagnating.”

Wait a minute… all that money being put into the system to restore confidence and spur lending may just vanish?  So at the end of the day more banks fail, the economy continues to contract, available credit continues to contract, unemployment rises, and interest rates eventually rise.  This isn’t what Paulson sold to us with his bailout plan.  Were we duped?

Nah, the individuals responsible for the government’s actions are always in need of votes and making a horrible situation look not so bad or at least feasible to fix.  At the end of the day our failed bailouts will have a disastrous effect.  The consequences are a HUGE debt burden, a larger interest payment on that debt, the world losing confidence in the value of the dollar, and a prolonged recession probably followed by major inflation.  I’ve been singing this song for a while and it will take time to play out, but as you can see this is a VERY rocky road.

Why Gold?

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I agree that we are probably going to see a continued decline in commodity prices especially PMs.  However, given the increases in the monetary supply I forsee this trend reversing.  When the trend reverses, which isn’t going to happen immediately because we are headed towards a major recession, with unemployment rising, and more likely interest rates as well, inflation will be severe.

The Money Supply graphs are frightening.  Once that money goes into the system I wouldn’t be surprised if we start to see hyperinflation.   For all of our sakes I don’t want that to happen.

As for investing in PMs I think there are two types of people who purchase them.  The first is the speculator, and the other the long term purchaser regardless of price. (I’m leaving out purchasers for industry and jewelry).  As much as I don’t like to see the value in relation to fiat currency of my PMs decline my intent on owning them is for more of the oh shit situation.   Throughout time gold, and silver to a lesser degree have held up as a store of value.  They aren’t going to be worthless as can a paper currency backed by nothing. Politicians and those involved in the government don’t like PMs as they aren’t easily created.  Having a currency backed by a scarce resource means that they have to control spending as they can’t print money to pay for various expenditures.

So, why gold and silver?  What happens if the fiat currency fails?  All of a sudden you and I have a bunch of roman numerals in our bank accounts.  Sure we can go get paper currency, but it is better to use as heat.  If this happens chaos will ensue until another solution is created or we go back to a currency backed by PMs.  I doubt the latter case would occur as bureaucrats aren’t going to want that option. 

My other concern is war with Iran, which is looking more and more likely.  In this scenario gold and oil will skyrocket.  Oil will also be much harder to obtain and the government will probably institute a rationing scheme instead of letting the price rise.   I’d rather pay $50.00 a gallon for gas then not be able to get it or to have to wait in line for days.  I presume many of you don’t agree, but gas or no gas you pick!  Would I drive much NO… however, if I needed to go somewhere I could get the fuel I needed.   

Lastely, beyond Gold and Oil we all need food and water.  Don’t forget food.

 

-T 

Banks win with T.K.O!

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If I had to place a bet on who would win… The major banks or the taxpayer… The BANKS win!!  Hooray the institution is saved!  Round after round of talks end in someone getting bailed out or should I say supported or prevented from failing so the whole economy doesn’t come tumbling down.  The markets seems to be happy with the results of the weekend’s coordinated world-wide effort to support the financial industry.  The Dow is presently up 585 points and we are green across the boards.  

However, treasuries are losing ground quickly and Jim Rogers is shorting them.  I took that position earlier, but was too early and also got out too early.  Live and learn right?  I plan to reestablish that plan shortly.  Additionally, I don’t see how this is the “bottom” of the current crisis.  At every point along this decline since last October every time there is intervention the market rallies and then continues in is downward trajectory.  

I’m not watching CNBC, but I imagine everyone is talking about how last week was bottom and we are off to the races.  For a bottom to be in place we needed much more despair and hatred towards the markets.  Regardless of the long-term outlook (just wait for earnings season to really kick in) there is no point swimming up a waterfall.  Therefore I closed out a large position of ultra short index ETFs.  My bias is still short, but I’m not going to be surprised if we see an intermediate rally followed by the final shit storm of destruction.  Remember the fundamentals haven’t changed, only the fact that the world’s leaders are trying to hold things together to avoid a complete collapse.  This weekend only restored confidence to get people lending to each other again, and to prevent runs on the banks.

And alas it’s my 30th Birthday!  What a month to have a birthday eh!  I couldn’t have asked for a more excited, and hairbrained ride…

The US Dollar gaining? What?

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Hyperinflation, inflation, deflation, depression, recession, stagflation… well which is it? I have no clue, but there is a massive monetary inflation occurring, and a looming recession.  Hmmm so does this mean a inflationary depression?  Yikes.

Last week I took a break from overwhelming myself about the markets and the state of the economy. The timing wasn’t perfect, but I had personal reasons.

Before I start on the quest of exploring our present situation of the potententional…”ion”s I want to make sure we are on the same page. Therefore lets have a defining moment:

Money: Easily exchangeable, is relatively scarce, and is a store of value.

Inflation: An increase in the money supply
Deflation: A decrease in the money supply
Hyperinflation: A self-perpetuating unstoppable (more or less) state of inflation
Recession: A significant decline in business activity, mainly a contraction in the economy or slowing of growth
Depression: A long-term economic state characterized by unemployment and low prices and low levels of trade and investment
Stagflation: A period of time characterized by high inflation and recessionary conditions.

I’ve been looking at calls for the vaious scenarios and needed some clarification as to what happens in the various situations.  For the most part it seems obvious, but I’ve been struggling with the increase in the value of the United States dollar.  Our national debt is above 10 trillion and rising rapidly as the recent bailouts continue, and the most recent increase in military spending added another $612 billion that we have to pay for.

Why is the risk of deflation so frightening that the Fed, Treasury, governments, and foreign central banks will do anything to stave it off?  Deflation is like the grim reaper knocking on your door for a fiat currency.  A fiat currency survives on debt and inflation (credit expansion).  Too much inflation and it can become worthless, and negative inflation (deflation) and it gains value.  That sounds like a good thing but it isn’t.  As the currency gains in value debt becomes more expensive, and thus more difficult to pay off.  Imagine taking out a $100,000.00 loan with todays dollars and paying it off with dollars from 1930.  Good luck! During deflation prices also fall due to the decrease in the money supply and as there is no longer credit being handed out for people to use to consume and invest.  The whole system comes tumbling down and the reaper walks in the door to say hello!

When credit is created (a loan) that is an increase in the money supply, and when it is paid off that is a decrease in the money supply.  Say the loan is $100.00.  That is $100.00 of money put into existance with a very small percentage actually backing it.  Now I repay my $100.00 loan and that credit is erased and the money supply contracts.  This is the normal situation that occurs daily.  However, if people don’t want to lend or borrow then we have a problem.

No credit means no ability to borrow, which means no abilty to purchase goods and services.  Everything is based on debt today.  The change began in 1913 with the Fed, and the ultimate shift to fiat money was in 1972 during the Nixon presidency when we abandoned the gold standard and thus savers were punished from that day forward.

Okay this leads to me to the strengthening of the United States Dollar…  Why I ask is it getting stronger.  Many argue that it is because Europe is weakening, which may be part of the picture.  However, I read something that made a clear point that because European banks are required to hold dollars for various toxic debt they hold denominated in dollars they normally use the interbank markets based on the LIBOR rate.  However, that market is seized up and nobody wants to lend so they start using the EUR / USD credit swap market.  As they purchase dollars its value goes up.  Notice today that the Euro gained against the dollar when the Fed decided to start purchasing short-term commercial paper.  They are stepping in and becoming the new mainstay for that market: which one?  EVERY MARKET <Interesting…>

And tomorrow is a new day!

Force FED chickens…

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Ironic that WaMu’s collapse happens to coincide perfectly with this bailout proposal trying to be hurriedly pushed through Congress.  It will for sure pass now <that was my take last night><now we are seeing major hiccups in the process (thankfully)>.  We have been sold out by various individuals in the United States Government.  Very unfortunate indeed, and some say the greatest looting operation ever in history.  Mark my word it isn’t over and will continue to spread to regional banks.  I find it interesting that Goldman Sachs and JP Morgan are the golden children in this whole mess, not to mention that Paulson used to be CEO of Goldman.  Coincidence?

In the EXTREME case you are going to want to have food and water on hand.  A decent supply.  I don’t know if it will get to that, but there is a lot of uncertainty in people’s minds.  When they are fearful they do stupid things.  Besides it never hurts to be prepared for an earthquake. I’m concerned about a run on the dollar starting abroad than at home.

Yes, I realize I sound like a doomsdayer, but  I’m just taking a pragmatic approach to the whole thing.  Show me some good news in this mess and I might be willing to alter my view slightly.
Has it occurred to you that we were fed the same crap with respect to going into Iraq about weapons of mass destruction?  This administration has been credited with being stupid, but I’m starting to wonder if that was all a line.  They have systematically destroyed the dollar, taken us to a never ending war – Iraq, allowed the credit bubble to get as big as it did, and in the end who gets to pay the bill?   The taxpayer.

And I’ll now step off my soapbox :)

-T

And don’t forget about Voltaire!

“Paper money eventually returns to its intrinsic value – zero”

~ Voltaire – 1729

Fed inflating with no restraint – Hyperinflation?

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A picture is worth a trillion words…

 

Money Supply 09/25/2008

Money Supply 09/25/2008

Frankly I’m not surprise to see what the Fed is doing and can only imagine what this is going to look like if this bailout goes through.  There is a precedent throughout time that inflating the monetary supply only prolongs the inevitable.  This is a sad state of affairs and I see only troubled times ahead for the once mighty dollar.  Like the Romans who clipped their gold and silver coins the United States is creating more and more money from nothing.  Why do we need a bailout package when we can just print money?  It isn’t actually printed anymore, but issued through treasuries between the Fed, the Treasury, and private banks.  

We are headed towards a recession if we aren’t already in one.  Inflating the money supply while in a recession presumably means higher prices.  The contraction in prices we recently saw was perhaps a byproduct of the Fed contracting the money supply, which it has now reversed course.  During the Great Depression of 1929 many banks tried using their depositor’s money to help keep the market afloat just as the Fed is now doing… The outcome?  You know what happened…  

Now we are taking the opposite position and inflating.  What happened to Rome… and thanks to Mike Hewitt at dollardaze.org he lists many countries plagued by hyperinflation. 

  • Angola (1991-1999)
  • Argentina (1975-1991)
  • Austria (1921-1922)
  • Belarus (1994-2002)
  • Bolivia (1984-1986)
  • Brazil (1986-1994)
  • Bosnia-Herzegovina (1993)
  • Bulgaria (1991-1997)
  • Chile (1971-1973)
  • China (1939-1950)
  • Free City of Danzig (1923)
  • Ecuador (2000)
  • England
  • Greece (1944-1953)
  • France (1789-1797)
  • Georgia (1995)
  • Germany (1923-1924, 1945-1948)
  • Greece (1944-1953)
  • Hungary (1922-1924, 1944-1946)
  • Israel (1979-1985)
  • Japan (1944-1948)
  • Krajina (1993)
  • Madagascar (2004)
  • Mexico (2004)
  • Nicaragua (1987-1990)
  • Persian Empire (1294)
  • Peru (1984-1990)
  • Poland (1922-1924, 1990-1993)
  • Romania (2000-2005)
  • Ancient Rome
  • Russia (1921-1922, 1992-1994)
  • Taiwan (late-1940′s)
  • Turkey (1990′s)
  • Ukraine (1993-1995)
  • United States (1812-1814, 1861-1865)
  • Yap (late 1800′s)
  • Yugoslavia (1989-1994)
  • Zaire (1989-1996)
  • Zimbabwe (1999 – present)

The fiat money system that we presently have, which in its present form has only been in existence since 1971 when we went off the gold standard.  To say that we have a precedent for what may or may not happen is incorrect.  We are now in uncharted territory, however history has its lessons.

Copperfield & Houdini for Presidency!

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I’ve attended a few performances by David Copperfield and he has performed the unbelievable.  Before my very own eyes a group of thirty people vanished into thin air.  Where did they go?  I watched the unbelievable made real right in front of me.  How could this be an illusion created to fool me into belief?  I ask you… HOW?

David Copperfield and Harry Houdini would probably be a better pair to run the government at this point.  At least they would give us a good show.  The current officials in office make my gut wrench.  We have migrated from the land of the free to nationalization of private property in the name of free markets.  Whoa… okay let’s get something straight.  WE DO NOT HAVE FREE MARKETS… NOT EVEN CLOSE  

If we actually had a system that represented free markets the Federal Reserve (a PRIVATE bank made up of member banks that are also PRIVATE) would not exist, we would still be on the gold standard, and the government wouldn’t even consider a bailout of the taxpayer’s funding, and the United States Treasury would not be proposing this amazing relief package for those who are mainly responsible for getting us into this mess.  

So, I mentioned two masters of illusion… Why?  What is being pulled off at the moment is happening in front of our eyes and for some like me is atrocious.  However, for others they think it is essential to the integrity of financial markets, financial institutions, and YOUR house.  The entire bailout is being purported as a bailout for the helpless homeowner, the saver, the middle class.  

The problem is that nobody knows how much any of this debt is actually worth.  Say the government buys $700,000,000,000,000.00 worth of debt at $0.20 on the dollar, which is great discount.  If that debt is in reality worth less than that we have a problem.  When will these notes be paid back, and in what form are the notes?  

Chris Martenson managed to grab part of an article that later disappeared from Bloomberg that said:

“The Treasury’s thinking is to make it as big and wide as possible so they have the flexibility to act if need be,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which manages about $108 billion. “There have been losses on a whole range of U.S. debts and as the economy deteriorates in response to the housing slump those losses could escalate.” 

Treasury officials now propose buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.

This effectively means any type of debt.  Let’s take a moment to see what forms of debt exist:

  • Credit Card DEBT
  • Mortgage DEBT
  • Automobile DEBT
  • Bond DEBT

………. and the list goes on ………….

So, we have the United States government wanting to take on all this debt in the name of saving the financial markets.  Let’s just take the debt from the banks to clear up their balance sheets so they don’t have to write it off, which would cause them to have to increase their reserves because their assets are now below the minimum.  We could lower that further, but it has already been lowered to 3% of total assets.  That means they most likely loaned out the other 97%.  

As the Fed creates money our dollar is worth less and less.  Where is the Federal Government going to come up with $700 Billion dollars?  They will create it from nothing, which the Federal Reserve is great at doing.  Inflation will not solve the problem, only exacerbate it.  Newt Gingrich opposes it, and admits that if he is wrong in not supporting it that it is the lesser of two evils.  

If this bill passes please say goodbye to the dollar as we know it.  Foreigners might finally reach the breaking point to where they are afraid to purchase dollars and realize that buying them to keep their currency less expensive is futile.