Dec 1, 2008

The Great Gamble

By Todd Strandberg

A long long time ago–exactly two weeks ago, to be precise–I reported that the U.S. government was on the hook for $5 trillion in short- and long-term bank debt. My November 17 "Nearing Midnight" update was titled “Drowning in a Sea of Red Ink.” I could have easily given the title, “Drowning in an Ocean of Red Ink,” to this one.

It is amazing what has transpired in just 14 days. The amount of money pledged by the Treasury and Federal Reserve has now topped $8.5 trillion.

I feel like I’m watching a financial soap opera. I would suggest titles like, “As the Dollar Turns,” "Days of Our Liabilities,” “General Bankruptcy,” or “All My Children Are in the Poor House.” Unlike the plot lines for soaps, we have no guarantee of a positive outcome.

The folks at Bloomberg Data have been keeping close track of the rapidly rising dollar figures. According to their latest count, the Federal Reserve has committed $5.5 trillion; the Federal Deposit Insurance Corp., $1.4 trillion; the Treasury Department, $1.2 trillion; and the Federal Housing Administration, $300 billion. The remaining pledge, as much as $200 billion to bolster Fannie Mae and Freddie Mac, hasn't been allocated to any agency.

Here are a couple of figures to help give you folks a grasp of the historic nature of these dollar figures. The $8.5 trillion is over half the value of everything produced in the nation last year–a sum of $14 trillion. The Federal Reserve is lending out money at a rate that is 1,900 times the weekly average from two years ago.

Despite all this lending, there is no guarantee that we will turn the corner and see a financial rebound. Banks are still bleeding cash. Citibank alone has lost $30 billion, which is why Uncle Sam needed to give it a $300 billion life line last week. According to Bloomberg, U.S. financial firms have taken losses of $666 billion since the beginning of 2007. That is a rather scary number in more ways than one.

The big question in my mind is: Where does this mess end? We are clearly headed for obligations totalling $10 trillion dollars. I hope events don’t force me to write a future article about commitments that have topped $15 or $20 trillion.

As of now, we have primarily been dealing with the fallout from the housing market. There is still the issue of the three automakers facing bankruptcy, several large cities needing a bailout, and credit card debt being in the danger zone for the past few years.

President-elect Obama has been talking about adding $600 billion to national debt by implementing a huge stimulus package. Obama has also promised to extend tax cuts that he had previously promised to end.

We are now at levels where America’s financial future is at stake. The government has so much debt on its balance sheet that if we don’t quickly pull out of this nosedive, our nation will face certain calamity. When you’re sitting on $8.5 trillion of risky assets, a 20 percent loss would come to $1.7 trillion. We are already expecting a trillion dollar budget shortfall for this fiscal year. I think international investors would balk at covering a nearly $3 trillion dollar deficit.

I have a peace of mind about this financial meltdown. So much has happened in such a short period of time, I can only conclude that the hand of God is at work here. We are already slated to escape the horrors of the tribulation. If God has also determined to have us escape an economic disaster, we have all the more reason to be looking for our Redeemer.

"Watch ye therefore, and pray always, that ye may be accounted worthy to escape all these things that shall come to pass, and to stand before the Son of man" (Luke 21:36).