Thursday, October 09, 2008

Comment: US govt continues to throw money into meltdown fix

There are those who say its like trying to smother a fire with bales of kindling, but the administration again shoveled money into the financial furnace.

The latest plan by Treasury Secretary Hank Paulson is to directly inject money into faltering banks by buying shares with money from the $850 billion bailout package. The purpose is clear. They want to make money quickly available for credit purposes.

But what about the bad mortgages? Again, the government is trying to solve one debt problem by introducing more debt.

And anytime large amounts of money are injected rapidly into the system, we can expect inflation.

Max Keiser, the controversial American financial activist who appears mainly in overseas media, believes that the next debt meltdown will come in the credit card industry. Inflation will cause many people who survive day-to-day to prioritize their expenses.

Water, food, housing, heating bills will be high on the priority list. Credit card bills will be relatively low on that list. After all, defaulting or becoming irregular on credit card debt at the most means losing the credit card and some harassment by collection agencies. You can survive all that of course.

If credit card debt gets hurt, institutions in the credit card business, like Bank of America, will be hurt as well. Basically inflation will just spread the damage putting more businesses in the bailout mode.

Consumers will tighten up spending at least until they see inflation settling, so the overall economy will slow.

Interestingly, the government no longer provides stats for M3, the overall money supply, probably because it fears the numbers would curb support for its easy money policy.

One website,, has estimated these and other statistics that have been impacted by changes in government economic information collection and reporting. Their chart shows the estimated sharp rise in money supply arising from the flood of corporate welfare being spent by the government since official M3 statistics ended.

Money Supply

Chart of U.S Money Supply Growth. M1,M2,M3

Charts of M1,M2 & M3 Levels

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Russia to increase military budget by 50%

Although the recent drop in oil prices may hurt the economy, Russia is planning to use big profits from oil and gas exports to expand military spending by nearly 50 percent over the next three years.

Russia has been responding energetically to what it sees as expansionist moves by NATO. The new defense budget would include aggressive spending on cruise missile and attack submarines, and also emphasis on air superiority fighters. There are reports that Moscow is also planning to build eight highly-advanced Borey ballistic missile submarines.

Moscow has significantly increased operations beyond its borders that were nearly entirely retired after the fall of the Soviet Union.

Voice of America

Russia plans to boost military spending
Washington Times - 57 minutes ago
MOSCOW | Russia, flush with wealth from its record-level oil and gas exports, is planning to further boost its defense spending by almost 50 percent over the next three years, a senior legislator in Moscow said last week.
Video: World needs new rules RussiaToday
Medvedev promotes new security pact

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