Since last year, I have been closely following the FDIC's DIF fund (Deposit Insurance Fund). Starting at $53 billion in 2008, the DIF has dwindled down to.... zero. by Jake Towne, the Champion of the Constitution
(libertarian)
Monday, August 17, 2009
Since last year, Ihave been closely following the FDIC's DIF fund (Deposit Insurance Fund). Starting at $53 billion in 2008, the DIF has dwindled down to.... zero. From the estimated losses they post after each bank closure, the FDIC is technically bankrupt. The DIF is toast.
Although there does not seem to be much consternation in the mainstream media, a popular blog, Mish's Global Economic Trend Analysis, posted my conclusion, saving me the work of typing it up, here. I confirm that my own spreadsheet is also negative. Readers of my column are quite aware of the predictions and suggested methods of protection made in "Off a Cliff with No Airbags" in April and the recent post here at TowneForCongress.com, "Yes, Virginia, There Are No Reserve Requirements" among other warnings of system insolvency.
The most likely scenario is that the U.S. Congress now allows the FDIC to tap into the $100 billion "backup insurance" fund already set aside. However, the reader should carefully note my conclusion in "Yes, Virginia..." that we are on a paper ticket system. In times of trial and lies, the truth can be labeled as deceit, but that does not make it any less truthful.
Truth persists and illuminates, even if there is no one around to utter it.
From Mish's piece, note the words of deception from FDIC Chairwoman Sheila Bair on last Friday:
"The past 18 months have been a very trying period in the financial services arena, but the FDIC and its staff have performed as Congress envisioned when it created the corporation more than 75 years ago. Today, after protecting almost $300 billion in deposits since the current financial crisis began, the FDIC's guarantee is as certain as ever. Our industry funded reserves have covered all losses to date. In fact, losses from today's failures are lower than had been projected. I commend our staff for their excellent work in assuring once again a smooth transition for bank customers with these resolutions. The FDIC continues to stand by the nation's insured deposits with the full faith and credit of the U.S. government. No depositor has ever lost a penny of their insured deposits." (photo)
My retort to Bair is to check on the $53 billion the FDIC has LOST over the last one and a half years. This is a SHOCKING AND OUTRAGEOUS amount of money lost by clueless savers, but when one remembers that, heck, they are just paper tickets and fiat electrons anyways, perhaps everything will work out. Yeah, right.
Besides this troubling news, one should also take a look at the monetization of debt by the Federal Reserve. Chris Martenson writes a great piece here about POMOs - Permanent Open Market Operations. We learned about OMOs recently in "Fractional Reserve Banking in Pictures." POMOs are when the FED very quickly buys the same Treasury from its primary dealers (or even direct from the Treasury if need be) and "adds reserves" or "injects liquidity" to the system. This is just fancy talk for creating new dollars out of thin air. All of the recent POMOs are purchases, but they can also be sales by the FED, which would deplete the money supply.
Obviously, one should not look to Bair or the other central planners to start a panic; to the contrary, they will do anything to avoid a panic. Therefore let a word to the wise be sufficient, and stay free. Until we have members of Congress who will drive for sound money, this depression is going to take a long while. Readers looking to cheer up should check out the weekend funnies from the blogger Economicrot. While I am short-term pessimistic, the long-term prospectives are promising and well worth fighting for.
In liberty,
Jake Towne, the Champion of the Constitution
August 17, 2009
P.S. Interested readers should also check out this post by FOFOA entitled "The Waterfall Effect" on the inflation/deflation debate and also Martin Armstrong's "How All Systems Can Collapse Overnight" which are very relevant to the economic situation at hand.
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Thanks for another excellent and informative article. But I am curious about one thing. You said: "While I am short-term pessimistic, the long-term prospectives are promising and well worth fighting for."
We are $11 trillion in debt with $40 trillion in unfunded future liabilities. The economy is still seriously down and now FDIC is broke. How do you envision things turning out well?
Posted By: Jake Towne, the Champion of the Constitution
Date: 2009-08-17 15:07:31
David S -
The ascent of man can't be stopped if the American trend towards socialism can be reversed. Â Did you read the Armstrong article - a lot of his recent stuff has been quite good? Â
You answered your own question, in a way, $11 T with whatever-trillion in liabilites... in dollars....  what does my article say about dollars?  If you dont catch my drift, just reply back. Â
At the end of last month, the FDIC was solvent to the tune of about $680M. Â The latest bank collapses are expected to put them in the hole for $2B. Â Who cares? Â $2 billion won't buy you a grain of rice in a few years. Â You're right Jake, the future is bright, for those who survive.
In liberty,