Wednesday, August 12, 2009

Total cost financial crisis: US$ 100 T.; cost till now: app 10%

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Total estimated cost financial crisis: US$ 100 Trillion.; cost till now: app 10%.

Daily Bell

The cost of mopping up after the world financial crisis has come to $11.9 trillion (£7.12 trillion) - enough to finance a £1,779 handout for every man, woman and child on the planet. The staggering total is equivalent to around a fifth of the entire globe's annual economic output and includes capital injections pumped into banks in order to prevent them from collapse, the cost of soaking up so-called toxic assets, guarantees over debt and liquidity support from central banks. Although much of the total may never be called on, the potential outlay still dwarfs any previous repair bill for the global economy. - Telegraph

Dominant Social Theme: A lot of money.

Free-Market Analysis: We have been estimating that the total cost of the latest financial crisis may be up to US$100 trillion. According to this analysis we are only at 10 percent of this total. But it depends on how you add up the figures and how much is really known. US figures that were recently released indicated that the total from the US$700 billion TARP program alone could end up costing the US government trillions if the economy continued to go south. This doesn't include the British tax bailouts, the European Union figures, etc.

US congressional questioning revealed that the Federal Reserve had loaned out up to US$8 trillion or more to a variety of domestic and foreign financial entities. And who knows what other loans and payments have been made by other central banks as a result of the recent financial crisis.

This was no ordinary financial crisis. The fiat money system spawned by the West basically ended in 2008. It may seem to have come back now, but the idea that markets, investors and savers can merely continue on in a system that lay in ruins only months ago seems difficult to fathom. There are too many people now distrustful of the system and because the system decayed in real time on the Internet, too many people have been exposed to free-market explanations that make more sense than the ones provided by the authorities.

Conclusion: We still stand behind our US$100 trillion figure. It is not so outlandish when you start adding up corollary costs having to do with unemployment, bankruptcies and other figures not directly associated with monetary and fiscal stimulation. Regardless of the ultimate figure, we do believe that the current system has been basically destabilized along with ability of central banks to count on a limitless well of citizen good faith. The American Federal Reserve carries an approval rating around 30 percent - the same as the IRS. More than that, the ability of central bankers to stabilize a world economy with so much liquidity (along with a paucity of good will) is highly doubtful. We think it just as likely that economic struggles will lead eventually to some kind of renewed hard-money standard.

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