The United States is in a more dire situation than many of the financial institutions it is preparing to bailout. Tax revenue is falling and can't be raised without crushing the economy. Printing money isn't a viable option either as it would crush the currency, forcing 95% of Americans into destitute poverty. The realization that the government is insolvent hasn't sunk into the market yet (although it is beginning to), and that is the only thing keeping the federal government functioning normally.

Despite the US's dire financial straits, investors take its "full faith and credit", which backstops the FDIC, for granted. This will change as the federal government throws its backing behind every bad debt under the sun.

With each new guarantee, the US stretches its credibility and weakens the value of its guarantee. In recent weeks, "full faith and credit" has been used to insure 5 trillion of Freddie/Fannie debt, 3 trillion dollar in money market, and another 1 trillion dollar in bank deposits (raising FDIC limit from 100,000 to 250,000). On top of this, the treasury is now planning to further extend its guarantee to all bank deposits, Interbank lending, and the senior debt of financial institutions. This is insane. If the government tries to guarantee all bad debt, then its guarantee loses all credibly, effectively guaranteeing nothing.


So be careful, the FDIC insurance on your bank account is becoming increasingly worthless as the "full faith and credit" of the US government becomes a bad joke.