Friday, August 06, 2010

The money's not here.

If you think that your bank account is 100% safe and accounted for, then think again.

Today most Americans feel confident that their savings and checking accounts won't disappear because they're insured by the FDIC. That used to be a sure thing up until a couple of years ago, but due to all of the recent bank closings and rescues, the FDIC is now in debt $20 billion. If the U.S. Treasury had money to spare then this wouldn't be a catastrophe, but the federal government is in debt $13 trillion, and is adding another $1.5 trillion of debt this year. Were the economy to recover soon then increased tax revenues could at least allow the national budget to stabilize and limp along at its current debt level, but recent news is revealing the "Summer of Recovery" to be a mirage:
  • June job losses were larger than previously reported (220,000 lost instead of 125,000)
  • The total unemployment rate including part-time workers looking for full employment and people who have given up looking for jobs is now 16%.
  • The budget shortfalls of states and cities are getting worse nationwide.
  • A whole new round of residential and commercial foreclosures looms.
In other words, the financial system is not yet out of the woods and government needs more and more money to maintain the status quo, but taxpayers have less and less money to give.

The money's not here.


Cathy said...

Well. That was sobering.

I think it's time for my evening beverage. Maybe a second one ;-)

linc campbell said...

Historically speaking, unemployment is the last thing to recover.

What do you make of all these earnings surprises?

Jody Wilson said...


I don't think much of earnings numbers in general, since they can be manipulated and always tend to be optimistic. As I've said before, dividends are the most trustworthy evidence that corporations are making real and stable profits, and the dividend yield of the S&P 500 is hovering around 2%, which is highly overvalued.

The other problem is that our economy is being propped up with unsustainable deficit spending of $1.5 trillion per year, and this won't last forever. I have no idea what the resolution will be, but I'm pretty sure that it will be unplanned and painful.