Pot calling the kettle black

May 13, 2009

 

If ever there was a case for the pot calling the kettle black, it was back in February when the Obama Administration ordered “stress tests” to determine the financial condition of this nation’s 19 biggest banks to ascertain their financial health should the economic downturn worsen. 
 
Stress tests results reported by the Los AngelesTimes on May 7th indicated that 10 major banks are in need of more capital ($74.6 billion) to withstand a worse-than-expected economic downturn.
 
A May 9th commentary in The Wall Street Journal, Banks Won Concessions on Tests, detailed a test results scenario which told how all 19 banks face a total of $599 billion in losses over the next two year should future depression-like conditions occur, despite the concessions granted by the federal government.
 
The 10 major banks failing the stress test are being forced to raise equity.  The government might even force them to take federal money if they cannot find private institutions to fund them. 
 
Shouldn’t the federal government also be subjected to a stress test?   Our government is not only insolvent, but it is making decision daily to worsen our economic well being.
 
With this in mind, I would like to share the results of an Illinois Policy Institute of Chicago stress test given to the state of Illinois and the federal government (www.illinoispolicyinsititute.org).  A look at the Treasury’s upcoming stress activity includes:

 

  • Borrowing a record-setting $36l billion in the current April-June quarter.
  • Borrowing $515 billion in the July-September quarter.
  • Estimating the federal deficit for the entire budget year (ending Sept. 30) will total a record $1.75 trillion, quadrupling the previous record of $454.8 billion set last year.
  • Increasing the national debt cap to $12.1 trillion to allow enormous borrowing.  Currently the national debt equals $11.1 trillion.
  • Illinois isn’t doing much better.  It has approximtely $82 billion in unfunded pension liabilities.
Then there are Illinois Policy Institute figures that set the FY2009 federal deficit at  -$1,750,000,000,000 (That’s in trillions, by the way), while the Illinois FY2009 deficit comes in at -$11,500,000,000 (Billions!  That’s chump change.) 
 
Regarding our U.S. federal debt, the Institute places the figure at $11,208,076,192,300.55 (In case your eyes are crossing, that’s also in trillions), with U.S. unfunded Social Security and Medicare Liability amounting to $100,000,000,000,000 (Yes…more trillions.). 
 
In the words of the Illinois Policy Institute:  “In short, stressed spender are giving stress tests to our banks.  Perhaps the federal government should start with administrating a stress test on itself, and after determining its own insolvency, put ownership and control back into the hands of families and businesses of this country.”
 
This sounds like sound fiscal advice to me.
 

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