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XMFSinchiruna (27.70)

Anyone curious what the total U.S. price tag for the crisis is thus far? You won't believe your eyes either.

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October 09, 2008 – Comments (13)

I could hardly believe my own eyes as I sifted through the sources I researched for this article. I knew the total outlays from the Federal Reserve and the Treasury combined had to be approaching the $2 trillion mark, but that turns out to have been hugely conservative! Incredibly, our government and its private partner (the Fed) have tossed nearly twice that amount at this crisis, and still our credit markets are locked up like a Gitmo abductee.

I believe it is crucial for every citizen to be keenly aware of this tally, and so the many hours of research that went into this report represent a real labor of love for me. Please share this article with your family, friends, co-workers, etc. Let as many people as you can learn precisely what is happening here. The future impacts of these actions can scarcely be imagined, and the certainty of hyperinflation is now set in stone.

As you did so effectively with the "700 Billion Reasons to Own Some Gold" article earlier in the week, I humbly ask once more that all you Fools who think this is valuable information please recommend the article here so that it can find a wider audience. If we recommend it up into the top 5 articles, it will find a space on the Motley Fool homepage, and thus increase awareness of just what these expendtures mean for our collective future.

For my part, I pledge to keep a running tally of the complete price tag for this crisis going forward, and to report the result here and in future articles as appropriate. For now, and using a very conservative estimate for the recently announced commercial paper facility from the Fed, the total stands at a jaw dropping:

$3,891,300,000,000

For context:

We have surpassed the 2007 national budget ($2.77 trillion) by more than $1 trillion!

We have committed nearly five times the total direct cost to date ($800 billion) of the entire Iraq War!

Countries whose entire nominal GDP in 2007 was less that this amount: Germany, China, France, Italy, Spain, etc. etc. (only the U.S. and Japan were higher).

It's equivalent to 38% of our present national debt of $10.25 trillion, or nearly equivalent to the entire portion of our debt held by foreign governments ($4.27 trillion)

The hyperinflation we will experience by virtue of this flood of USD into the world markets will become the stuff of legend. Buy gold.

Thank you again for recommending the article.

TMFSinchiruna

13 Comments – Post Your Own

#1) On October 09, 2008 at 5:16 PM, TMFLomax (50.23) wrote:

Did you see the national debt clock ran out of numbers? A related and disturbing note.

http://news.bbc.co.uk/2/hi/business/7660409.stm

And I already recommended your article! :) Nice work! I knew it was ugly, much uglier than was being reported... I commend you for actually doing the legwork to get a tally!

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#2) On October 09, 2008 at 5:24 PM, XMFSinchiruna (27.70) wrote:

TMFLomax

Thanks so much! I did see the debt clock story... unbelievable! Did you notice, too, that the new clockthey'll install next year won't just have one extra digit, but 2!!  Yikes! I guess with the inflation we'll be seeing one could run up a $100 trillion debt in no time.

BTW, I really enjoyed your Bailout: The Sucker Punch article!

 

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#3) On October 09, 2008 at 6:03 PM, lquadland10 (< 20) wrote:

Do other nations have a clock and what is their debt?

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#4) On October 09, 2008 at 6:18 PM, dwot (54.27) wrote:

lquadland, I think Canada has one...  For the past 10 years, until this year, our debt clock would have been showing less debt...

Today I saw news that makes me wonder if maybe Canada will have a massive deficit this year.  Last year we had a 13 billion surplus.  

Good post.  It showed 25 recommends when I went to open it and 28 after I hit the recommend button.  You are racking them up fast on this one...

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#5) On October 09, 2008 at 6:41 PM, Ph1sh55 (28.34) wrote:

I don't think this points to the hyperinflation you're predicting.  There's an even far greater amount of wealth being used to pay down debts, tied up in CDS, or that has simply disappeared.  These are attempts to counter-act deflation and 4 trillion- as scary as that is, doesn't even begin to make a dent.  Invest in gold if you like, but the dollar will continue to rise.

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#6) On October 09, 2008 at 8:46 PM, anchak (99.84) wrote:

Do you think that the asset deflation itself will exceed that figure ?

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#7) On October 09, 2008 at 9:04 PM, XMFSinchiruna (27.70) wrote:

anchak

Impending defaults on a portion of the assets being accepted by the Fed and Treasury as collateral is the question that many seem to be overlooking. What is the ultimate value of derivative contracts in an environment of zero appetite for risk or leverage? It's zero. Some of these derivatives will go to zero, in my opinion. The inflationary impact of the expanding monetary base cannot be averted in my opinion.

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#8) On October 10, 2008 at 2:49 AM, jesusfreakinco (28.81) wrote:

TMFS,

What are your top five gold stocks to buy?

Ever seen this article:

http://www.financialsense.com/fsu/editorials/2003/1209.html

What are the next Wharf, Azure, or Lion Mines?  I am betting on TRE as being one of those...

JFinCO

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#9) On October 10, 2008 at 4:44 AM, XMFSinchiruna (27.70) wrote:

jesusfreakinco

I own no TRE.

For royalties I prefer RGLD.

For miners, if you're looking at five or so, I would consider a small basket representing perhaps one major, 2 or 3 intermediates, and one junior. NEM or GG are solid majors, AUY, AEM, and KGC are leading intermediates, and  Gammon and IAMGold are among some favorite names in the junior space.

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#10) On October 10, 2008 at 4:31 PM, bostoncelitcs (37.13) wrote:

It is sickening......but had President Bush upon our invasion of Iraq shown "LEADERSHIP" and told the American people sacrifices were going to have to be made.......including those on Wall St.,  a lot of this could have been averted......instead he only encouraged Americans to keep shopping at the malls and driving their SUV's.

We deserve this crisis that we've got!

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#11) On October 11, 2008 at 12:08 PM, cliffyworld (< 20) wrote:

For more on the reason for the meltown read the article"It's not just the pork. The cows have to be fed too" at http://www.cliffyworld.com/blogs

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#12) On October 12, 2008 at 1:29 PM, bingobum (69.15) wrote:

The only thing we remember are promises of wealth. Lead with a new vision of checks and balances.

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#13) On October 12, 2008 at 3:15 PM, ekosak (33.96) wrote:

First of all thank you for your efforts on adding up all the individual line items ( I am curious, could you share the individual line items?).

Many here have expressed fear of hyperinflation; others here have pointed out at deflation. 
I believe both are partially correct.

The way I look at this is the need to subtract all this debt from all the deleveraging going on. 
If the subtraction is negative, then we will get inflation if the numbers are sufficiently large; however, if the numbers are within historical growth rates after subtracting the deleveraging numbers, then inflation should be contained, and a modest rate of inflation should be the result.

Note that one of the variables in this equation is the strong appreciation of the dollar in the last few months. 
This tends to decrease inflation, and it is, therefore, an important variable in determining inflation. 
An example of lower inflation due to a stronger dollar is the lower cost of oil in the last two months.

A further component of inflation has to do with the balance of demand and supply on different goods and services. 
For now, I would expect a lower demand and steady or lower supply of goods and services. 
The balance should determine too inflationary levels. 
A recessionary economy should lower demand; however, the credit crisis makes it more difficult for suppliers to supply goods and services, and this could be inflationary.

In summary, the debt (by printing money paper or electronically) is inflationary, the deleveraging process is not inflationary, and the dollar's appreciation is not inflationary.  The intersection of demand and supply for different goods and services should add or lower expected inflation.
The balance of all these should be analyzed before attempting to estimate future inflation.

On a further thought, the FED should publish up to date figures on a weekly basis for these numbers since this will decrease tremendously the uncertainty all around the world regarding US inflation.  This is the time for transparency not for hiding numbers or publishing wrong data.

This should help stabilize the markets from LIBOR to mortgage rates, and it should help further in stabilizing the markets outlook for expected inflation ( this affects the prices of stocks).  In addition, it will help in determining the value of the dollar, oil, gold, grains, etc.

It will not stop the market's decline until a better grip on future expected earnings is seen over the horizon. 
Expected inflation is a big component of future earnings when there is uncertainty regarding inflation or deflation.

This crisis in NOW centered on credit, CONFIDENCE, and TRUST.

Placing a number value on this is a bit more abstract, than in placing value in the stock market or in an individual stock.

For those interested, my own outcome show the markets close on Wednesday or Thursday of this coming week to be lower than Friday's close of last week.

Elliot wave technicians expect the S&P much lower further down the road.

Based on fundamentals, Jubak (from MoneyCentral.com) sees the market a bit higher after Thursday 23rd for a short term bounce. 
This could be the same bounce that Elliot wave technicians expect in the market; however, you should be nimble and fast on your feet and take profits quickly since it will likely continue lower after this.

This is the type of market where you are better off being late rather than early. 
Unless you are a professional trader, being too early will increase risks too much. 
Let the market go up and down until you feel better that a bottom has been reached in the stock market. 
This is not the time to risk your hard earned cash to buy a bargain stock.

This market has more in common with the market crashes prior to 1987, than any other market of the last three decades, and it has more in common with the market of 1929, than any other market crash that I can remember.  It is full of twists and turns for a lower stock market.
So be very careful, and stay in cash until the bottom is felt.

To solve this market slide, regulators and legislators must step up to the plate with new rules and legislation to avoid the level of leverage allowed of 20 to 40 times to one allowed by large investment firms like Lehamn and Bears in the past. 
In addition, they should contain and constrain brokerage divisions regarding margin requirements.

Investment allocations based on this lack of information at this point, increase the allocation for cash above stocks or even gold. 

Your percentage into gold should be based on money which you don't need for the next 5 to 6 years, and your stop loss for now would need to be placed much lower.  Based on a fundamental investment, you could invest on it without a stop loss to avoid the large volatility of the current markets.  Capital preservation rather than capital investment should be your priority in this type of market.

Regards,

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