Well, in a way there actually is approximately the same amount of money as debt because debt is money. If the debt is allowed to fail then the money goes away.
Yeah, we're saying the same thing in different ways here. So if that massive debt fails, the money evaporates from the economy. That large a percentage of the economy evaporating... Bad news. Very bad news.
his is hugely inconveniencing for the average person who doesn't have much money anyway and has to resort to barter to keep alive.
Agreed. I'm not real keen on barter.
So, what can be done? Well, if the government borrows the money to cover the Freddie and Fannie debts from the Federal Reserve then the debts are backed by the US government (and its power to tax) and it is much less likely to collapse. This protects the super wealthy at the expense of the vast majority of the population who are your average taxpaying citizen.
I'm not sure how you reached this point, though. Fannie/Freddie stock becomes worthless as they are folded back into the Fed. I suppose it helps the selling banks keep the bad loans off their portfolio... Thus keeping those banks alive... But taxpayers would be on the hook there, too, as the selling banks would need to be bailed by the FDIC should they go kablooey. Oversight should have been holding the selling (consumer loans) banks in line. It wasn't, of course. But it's too late to worry about that horse. It left the barn years ago.
One little wrinkle in the current proposal is that it will render Fannie and Freddie shares virtually worthless and a little bit of a problem for scores of banks who hold a lot of these devices to satisfy their capital reserve requirements. If those holdings become worthless then banks don't have any reserve to issue loans against which results in banks failing and the average Joe resorting to barter while all the people who own most of the money get to keep the money.
I've tried to parse this part a few times, and it's where I keep getting confused. So we agree that Fannie/Freddie shares are worthless. Yes, there are some banks and funds holding those shares. They will take a hit.
How does that leave them with money (well, they'll always have golden parachutes, but should have taken some hits) and me bartering (the part that concerns me, and I'm wanting to avoid...)? I don't mean it as a sarcastic question... If it IS the case, I'm trying to understand which direction I'm getting screwed from.
I mean, even if my bank goes under, it gets bailed by the FDIC, too, and I still have my money in it. I get stuck with some inflation due to the Fed inventing a bunch of money, but that doesn't matter much, as I don't have a lot of money (comparatively). Inflation devalues what currency I have, but also stabilizes the price of my house and possessions. Looks like a wash to me. (shrug) The numbers will change, but my life shouldn't. Am I missing something?
