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US Financial Situation

Posted on Monday, 19th October, 2009 by admin

global-economy_0Because of the worldwide financial crisis US are now suggesting a legislation that would generate as much as US$1 trillion which will be used to buy bad asset among the demoralized financial institutions. The step involves two approaches calm the market and create liquidity into the financial system. The goal of this move is to stop the economy from further downward making things much worst as compared before. Base on history this is the biggest single government intervention in financial market since the depression in 1930s and it involved a large amount of dollars. The economic implication could be disastrous if the action has been done and let the financial situation deteriorate the way it has been over the part months. The total US mortgage exposure is US$12 trillion dollars and US$2 trillion is identified as bad debt. It is a very large amount of money when considering the equity of most US financial institutions.

The financial situation is critical. The plan termed as bail out will cost the taxpayers more than 700 billion. Actually this financial institution does not know how much is at stake if regards with bad loan. The creation of derivative financial products was taken from the mortgages and is highly leveraged. The bail out price tag would run into the trillions of dollars once the true losses are known. The US dollar will nose dive and the only solution for the FED is to print up new money like it has never been before.

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