- Created: Tuesday, 14 April 2009 12:22
- Written by Steve Palmer
FRFI 206 December 2008 / January 2009
US finance capital has gone through extraordinary turbulence in the last few weeks. Through a torrent of financial measures, the US Federal Reserve (Fed) has now become the main participant in the US money market, since it is the only bank that lenders trust. The entire total of handouts, bail-outs, loans and guarantees now comes to a staggering $8.5 trillion – more than half the annual production of the US. The national debt is now over $10 trillion. Debt on this scale is unprecedented. Can it be sustained? Is the US ‘too big to fail’?
In past issues of FRFI we have shown how derivatives, exotic financial instruments, have proved to be so toxic to the financial system that leading US financial institutions have had to be nationalised or taken over to survive – or else allowed to go bankrupt. In our last issue, we showed that since the toxic assets have no market, they are difficult to price, hence cannot be used as security collateral in exchange for loans. The entire US money market began to freeze up; in place of credit, a furious hunt for cash began.