A U.S. Financial Paradox

Why is the U.S. government borrowing money to deposit in European banks that are going to fail?

The answer from the U.S. perspective is that making those deposits will help to prevent them from failing and by giving them money, they will loan it to one another, thus preventing the global financial system from freezing up, as it began doing last week. Unfortunately Portugal, Ireland, Italy, Greece and Spain are insolvent and these deposits will only slow the inevitable.

The U.S. was joined in making those deposits by the Banks of England, Japan and Switzerland and ironically, like England, the U.S. is also insolvent. But for now, the U.S. still has vast borrowing and printing capacity and is conducting itself as if it were still the world's wealthiest nation rather than its biggest debtor nation.

Dick
Note: Thank you to my wife Anne for posing the question raised in this piece.