The global financial meltdown continues at an escalating pace. All of these latest "bailout" plans which have passed within the past month are doing nothing to help the average American. In fact, the majority of these plans only help the same Wall Street firms (along with the "Fed")who primarily put us all in this financial mess to begin with many years ago.
The problem that we are faced with here in America is not necessarily a problem with "liquidity". In fact, the Fed and the U.S. Treasury are printing money as fast as they can in order to keep the markets from imploding sooner rather than later.
Remember, the Fed stopped releasing their M3 data (the broadest measure of all money released in the U.S.) back in March 2006. As a result, we do not know how much new money is released each month. The more money that is released into circulation, the less the value of all of our existing dollars will be in the future. This eventually leads to hyperinflation where our dollars buy significantly less goods and services.
When you typically borrow money, you normally borrow the money as an asset. As an offset, you usually have an equal off-setting liability for that borrowed asset. In today's convoluted financial world, the "Fed" (a private entity), and other Central Banks around the world, are acting as a clearing house for toxic, worthless securities.
For example, the Fed continues to increase the amount of funds lent to technically insolvent banks and investment banks through their anonymous Term Auction Facilities and the Term Securities Lending Facilities. These anonymous loans to many of the largest financial institutions in the world recently were supposedly as high as $480 BILLION PER DAY.
As I have written many times in the past, eventually these anonymous loans will have to be paid back, or stocks or bonds will have to be assigned to the "Fed" as a form of an equity consideration for these loans. If and when that happens, the existing stock and bond holders equity and debt values will then be diluted and almost worthless at some point in the near term (if not already).
The Fed initially allowed financial institutions to assign their highest rated AAA paper (usually Mortgage Backed Securities or Collaterized Debt Obligations) as "collateral" for these multi-billion dollar loans. However, the Fed in recent times began to allow financial institutions to assign their BBB (almost junk bond status) paper as "collateral" for cash.
In addition, the Fed may consider the paper to be valued at 100% of the total dollar amount. What is mind-boggling to me is that much of this debt may only now be saleable in the secondary markets worldwide for as low as 2 to 5 cents on the dollar.
This financial "house of cards" may eventually cause more financial firms to fail in the near term as well as transfer more ownership of the U.S. financial markets into the hands of less and less companies worldwide. The melting down of the Quadrillion (1,000 Trillion+ Plus) worth of primarily unregulated derivatives (a combination of equity and debt) is what this financial crisis is really all about.
You may expect our dollar to get weaker as time goes on partly due to the combination of massive government debt and the oversupply of too many dollars in circulation. Also, the lack of true equity and valuable assets for many publicly traded companies worldwide will eventually cause their stock values to plummet even further. I am usually an optimist in regard to life, but I also have been known to be a "realist" after researching this information for too many years.