Economic Armageddon?

If you’ve listened closely to top economic officials in the last few months, perhaps you — like me — got the impression that there was something — something serious — they weren’t telling us. Why else would so many politicians be so quick to pass legislation they hadn’t really read, giving so much unchecked power to the treasury secretary?

True, they were hinting at it, but they wouldn’t come right out and say it.

In the last few days, a video has raced around the Internet (which was actually made in January) at a fever pitch which appears to reveal what that something is: A run on the nation’s banks that allegedly brought the nation within hours of collapse.

The details came in a C-SPAN interview with Rep. Paul Kanjorski, D-PA.

Here’s the facts and we don’t even talk about these things: On Thursday (September 18) at about 11 o’clock in the morning, the Federal Reserve noticed a tremendous drawdown of moneymarket accounts in the United States, to the tune of $550 billion. It was being drawn out in the matter of an hour or two. The Treasury opened up its window to help. They pumped a $105 billion into the system, and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account, so there wouldn’t be any further panic out there and that’s what actually happened.

If they had not done that, their estimation was that by 2 o’clock that afternoon, $5.5 trillion would’ve been drawn out of the money market system of the United States, would’ve collapsed the entire economy of the United States, and in 24 hours, the world economy would’ve collapsed.

We talked at that time about what would happen if that happened. It would’ve been the end of our economic system and our political system as we know it. That’s why, when they made the point, ‘we’ve got to act and do things quickly,’ we did.

Here’s what we don’t know: We don’t know if any of that is true. Kanjorski hasn’t elaborated on it since, and today he had only this to say during a hearing with Federal Reserve Chair Ben Bernanke (as quoted by a New York Times live blog).

Paul Kanjorski, a Democrat from Pennsylvania, says he thinks “All of you,” including the chairman and the current and previous presidents and Treasury secretaries, “have failed for all of us, particularly the general public, to enunciate what the problem is.” He wants to know what “we can do to facilitate” the explanation of the problem to the American public.

So on the one hand he says he describes what the problem was and on the other hand he complains that nobody is saying what the problem was (and, apparently, still is.)

Rep. Brad Sherman, D-CA., took to the House floor a week or so later and, without citing too many specifics other than the prospect of martial law, suggested it was all a con to get the bailout passed.

Still, Motley Fool adds it up by comparing it to a confirmed run on the banks in London, and concluded that, yes, we were within 3 hours of economic disaster.

  • jim

    I wonder how many best selling novels and blockbuster movies will incorporate the fall of the world economy from this very situation in its plot line?

  • George Hayduke

    Three out of eight Minnesota congressional representatives sit on the House Financial Services Committee. Maybe a reporter should ask them about this theory/rumor.

  • Heather

    This story made me toss and turn last night, wondering if I should cash out my 401K.

  • hulles

    “So on the one hand he says he describes what the problem was and on the other hand he complains that nobody is saying what the problem was (and, apparently, still is.)”

    I think that’s a poor interpretation of what Kanjorski was trying to say. He was addressing the fiscal powers that be and urging them to explain the problem to the public, not asking that they explain the problem to him (Kanjorski).

    And I agree with Mr. Hayduke about tasking our MN representatives on this.

  • brian

    I’m not sure if this will make you feel better Heather, but it seems to me that cashing out your 401k wouldn’t make a huge amount of difference if what Rep. Kanjorski was describing came about. I don’t see why cash wouldn’t be worthless too.

    Unless you cashed it out into gold bars. Or maybe food, water, and guns.

  • kennedy

    If an economic system crash is coming, the best thing to do is borrow as many dollars as you possibly can and trade them for something that will have value after the crash.

    Investing in stock ties to something of value, but many companies would likely go bankrupt. Commodities like gold, oil, food, etc. may be a good hedge.

    I just don’t see a crash coming. The supply of dollars is unlimited as the dollar is not backed by any resource. If China demands dollars, they will be printed or created electonically.

    A more likely scenario is a devaluation of the dollar (read “inflation”) as the US is pushed to balance it’s debt load by creating dollars. Still, the end result is that holding cash is risky.

  • Al

    Wow, this is pretty frightening. I wonder what the public reaction will be if/when the mainstream media starts covering this intensely. I wonder if consumers will hold back purcahing even more than they already have.

    So say there had been the 5 trillion dollar bank run. Then what? What would the world have looked like?

  • Alison

    Assuming it is all true, it would be interesting to find out who on the many campaign trails knew about it when it happened and how the knowledge affected their campaigns. I wonder if all sorts of things would start to make sense given the newly revealed context.

  • Elizabeth T

    >>Why else would so many politicians be so quick to pass legislation they hadn’t really read, giving so much unchecked power to … ?

    Can you say “Patriot Act”? They didn’t read that, either (according to them), which had an astronomical effect on our economy.

    Why? Fear. Plain and simple Fear.

  • Bob Collins

    If the story is true, John McCain suspending his campaign doesn’t seem like such a strange act.

  • Alison

    Good point, Bob. Do you know if we’ll start hearing more about this on NPR shows?

  • Dan

    Bob. Thanks for your insight. You make a very valid point. Not to be too analytical, but McCain did wait almost a week before suspending his campaign (He made the announcement on September 24th). I would think his decision to suspend would have come much sooner. Maybe it was genuine, but actions in Washington always have some motive towards gaining political ground.

  • Nexxus

    Bad times are coming. When it becomes no longer profitable to import food and other items, we will not be able to just walk into a store and buy food or other supplies. We will need to flee the cities as there will be millions of desperate people looking for food. Paper money will mean nothing, investments and savings will be unattainable. The heat, gas, water and electricity for our homes will be turned off. To survive people will create gangs of small communities that look for and take by force what they need. Mega cities will become mega ghost towns, giant tombs of the dead who were too foolish to leave when they had the chance. Celente is right, but things will escalate far worse than even what he is predicting. Plan now or be crushed by this coming wave of change.