Senate passes Santa Act update No 1
6 October 2008
This article is an update to ‘Goodbye Wall Street‘ published in FRFI 205 October 2008
Last week the Handout Bill, sorry, the “2008 Emergency Economic Stabilization Bill”, came back from the Senate decorated with so many ornaments that it looks like an overburdened Christmas tree. Not only was there the $700bn for the banks, there were a host of tax cuts for business: wooden arrow makers in Oregon, race track owners, Puerto Rican rum … and on and on. All the candy sweetened the bill enough so that many objectors could swallow it.
But when it actually passed, the markets showed their appreciation by dropping further and locking up tighter. The process continued today, with the Dow Jones Index of stocks dropping below the 10,000 mark, a point reached back in 1999 and down by over 30% in the last year. The credit markets – the loans between capitalists – continued to be locked up, reflected in relatively high interest rates for interbank borrowing (Libor), in US Treasury Bills (lower yields) and increased rates in the Commercial Paper market, used for short-term operational borrowing by many businesses.
All the bill does is provide the possibility of taking the toxic waste out of the system – it does not solve the credit crisis itself. So, once again the US Federal Reserve, the Bank of England and the European Community Bank are going to have to step and try to restore liquidity with “more of the same” – interest rate cuts and other measures. But the more they do this, the less ammunition they have: interest rates can’t fall below zero and foreigners are going to be more and more reluctant to lend to the United States. The stage is being set for a huge worldwide depression.
References
Development of the credit crisis in the US:
Mr Parasite comes to Washington (Aug 2006) Hank Paulson, Chief Executive of Goldman Sachs is appointed US Treasury Secretary
As Safe as Houses (Aug 2007) The credit crisis starts to unfold
Capitalism on the Rocks (Oct 2007) Credit crisis hits Northern Rock
United States: Capitalism Rocks and Rolls (Dec 2007) Bank losses
Time to Face the Music (Feb 2008) Crisis deepens and broadens
Global Economic Crisis: Back from the Abyss (April 2008) Bear Stearns goes
US Credit Crisis: Passing the Buck (June 2008) We show why the crisis has to get worse
Adventures of Freddie and Fannie in the Land of Make-Believe (Aug 2008) Why Freddie and Fannie are about to collapse
Bye-bye Wall Street (Oct 2008)
Steve Palmer
US correspondant
FRFI 205 October / November 2008
