The FDIC marker


How government promises are worth less than the paper they're printed on
Stars above, I love the internet. Without "The Unofficial Blog" of the UK Libertarian Party, I would have missed this one. Emphasis added. Double emphasis added as well, just to make the point.

Once upon a time, there was indeed a segregated FDIC fund. During the Johnson Administration, someone had the bright idea to put the FDIC into the federal budget as a way to reduce the deficit. This was in the good old days when the FDIC always produced a surplus. Putting the FDIC on budget reduced the deficits being created by spending on the Great Society programs in tandem with the war in Vietnam.

The reality is that there is no FDIC fund. Anything the FDIC lays out to handle a bank failure must be borrowed by the Treasury, which adds to the federal deficit. The total amount of the current outlay is charged against the federal budget even if recoveries are expected in the future, as problem assets are collected by the FDIC. That’s the case whether the FDIC’s nominal balance at the Treasury is positive or negative.

The plain truth is that premiums paid by the banks to the FDIC today are a tax to compensate the government for putting its full faith and credit behind bank deposits. The nominal balance in the FDIC's account at Treasury is irrelevant, except that, over time, we want the banks to pay to the government more than the guarantee of deposits costs the government.

There you go. One of the great "success" stories of the New Deal, and the politicos couldn't leave well enough alone. They had to cover their behinds.

So there is nothing new here, how does this affect you?

Remember, government doesn't create money or value. It can only divert what already exists. The politicos have been playing poker with IOU markers. The "real" money is draining out of the system.

— NeoWayland

Posted: Sun - September 14, 2008 at 01:15 PM  Tag


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