According to the Federal Reserve Board, the money supply in the United States has almost tripled over the last 6 months, increasing by 271%
Consumer purchases have however declined, which means the money is not yet in circulation, and is therefore being used to pay back debt or is being saved in banks, as it’s obvious no one is investing.
Sooner rather than later, the money shall have to come back into circulation, and to all intents and purposes we shall enter a period of hyper-inflation i.e lots of money chasing a few goods.
In spite of this, or in preparation for this, the Obama adminsitration is asking Congress to give the FDIC a loan of $500 billion, the limit has been $30 Billion for close to 2 decades.
$500 Billion is an amount equal to 2 Million account holders making a run for the bank to withdraw the maximum $250,000 FDIC insured limit per account. It is also equal to the sum of about 1/3 of all the US currency in circulation as of January 2009. This cannot be good in any way, shape or form. Ultimately, If Obama is aware that his policies shall lead to hyper-inflation, why does he pursue them, or could this be mere cluelessness on his part? WSJ
Senate Banking Committee Chairman Christopher Dodd is moving to allow the Federal Deposit Insurance Corp. to temporarily borrow as much as $500 billion from the Treasury Department.
The Connecticut Democrat’s effort — which comes in response to urging from FDIC Chairman Sheila Bair, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner — would give the FDIC access to more money to rebuild its fund that insures consumers’ deposits, which have been hard hit by a string of bank failures.
Last week, the FDIC proposed raising fees on banks in order to build up its deposit insurance fund, which had just $19 billion at the end of 2008. That idea provoked protests from banks, which said such a burden would worsen their already shaken condition. The Dodd bill, if it becomes law, would represent an alternative source of funding.
Mr. Dodd’s bill could also give the FDIC more firepower to help address “systemic risks” in the economy, potentially creating another source of bailout funds in addition to the $700 billion already appropriated by Congress.
Mr. Bernanke said in a Feb. 2 letter to Mr. Dodd that such a “mechanism would allow the FDIC to respond expeditiously to emergency situations that may involve substantial risk to the financial system.”
The FDIC would be able to borrow as much as $500 billion until the end of 2010 if the FDIC, Fed, Treasury secretary and White House agree such money is warranted. The bill would allow it to borrow $100 billion absent that approval. Currently, its line of credit with the Treasury is $30 billion.
The FDIC’s deposit-insurance fund has fallen precipitously with 25 bank failures in 2008 and 16 so far in 2009. Some bank failures have a bigger impact on the fund than others, as IndyMac’s failure cost the fund more than $10 billion, while many others cost the fund less than $100 million.
A 1991 law generally caps the amount of money the FDIC can borrow from the Treasury at $30 billion, and the FDIC hasn’t borrowed money from the Treasury in more than a decade.
Ms. Bair said a change in the law would give the FDIC more options to determine the best way to rebuild its depleted fund. In an interview, she stressed that all insured deposits were already backed by the “full faith and credit of the United States government.”
A change in the law would ease “the mechanics of how seamlessly we can access our lines of” funding. “I’m the kind of person that likes to be prepared for all contingencies,” she said.
