How will US Treasury raise $1.2 trillion needed for bail out?

The FED is loaning out a trillion on top of the 700 billion the Treasury intends to spend and the 100s of billions already loaned, so your count isn't good.

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The present crisis, which has its roots in the unsupervised expansion of credit in the United States, has spread from subprime mortgages and toxic securities, to the entire global financial system, where it has roiled equities markets and is now threatening to do incalculable damage to the US and European banking systems.

Yesterday, Fed chairman Ben Bernanke announced plans to pump an estimated $1 trillion of short-term loans (commercial paper) to head off a growing liquidity squeeze. Unlike, Treasury Secretary Paulson's $700 billion bailout, which was opposed by over 200 economists, Bernanke's plan targets the source of the problem and could actually succeed. (ed: Commercial paper is a low-cost source of cash for companies to meet short-term financial needs. It's cheaper than tapping a line of credit at a bank) The Fed will start providing businesses and financial institutions with the short-term credit they need to maintain normal day-to-day operations. The Fed is invoking emergency powers under its "unusual and exigent circumstances" clause in order to avert an even larger shock to the financial system beyond the wreckage in the stock market and hundreds of bank closures that are expected into 2010. Providing unsecured loans directly to businesses is controversial, but necessary. If these corporations and financial institutions fail just because they cannot roll over their short term debt, the overall damage to the economic system could be devastating

In yesterday's speech, Fed chairman Bernanke gave a gloomy summary of present economic conditions:

"Economic activity had shown signs of decelerating even before the recent upsurge in financial-market tensions. As has been the case for some time, the housing market continues to be a primary source of weakness in the real economy as well as in the financial markets. However, the slowdown in economic activity has spread outside the housing sector. Private payrolls have continued to contract, and the declines in employment, together with earlier increases in food and energy prices, have eroded the purchasing power of households. This sluggishness of real incomes, together with tighter credit and declining household wealth, is now showing through more clearly to consumer spending. Indeed, since May, real consumer outlays have contracted significantly. Meanwhile, in the business sector, worsening sales prospects and a heightened sense of uncertainty have begun to weigh more heavily on investment spending as well."

The US is caught in a deflationary downdraft that could have catastrophic long term effects. That's why Bernanke has pulled out all the stops and doubled the Fed's loans (via auction facilities) to banks to $900 billion while allowing financial institutions to use mortgage-backed securities and other dodgy structured investments as collateral. The Fed has also started paying interest on reserve balances held at the central bank. This helps to push down the overnight lending rate below the Fed Funds rate which helps to reliquify the banks.

John Ryding, chief economist of RDQ Economics LLC in New York, called the practice, "stealth easing", another attempt to flood the markets with credit and get the economy moving. Will it work?

Bernanke has a good idea of the nearly-insurmountable challenges in front of him. Apart from the faltering banking system, the collapse in real estate, and the unwinding of trillions of dollars of counterparty bets via derivatives contracts; Bernanke faces the sudden capitulation in consumer spending. The US consumer is tapped out on credit card debt, student loans, car loans and home mortgages. Retail spending is falling and likely to get worse. Bernanke's plan to recapitalize the banking system ignores the larger issue that less people will be applying for loans and that less credit will be flowing through the system. Slower growth is inevitable. The sudden change in spending patterns is evident everywhere. Personal savings are increasing, home equity withdrawals are down (to nearly zero) and the new reality of "living within one's means" is becoming the prevailing ethos. America is hunkering down.

“Big discounts fail to lure shoppers,” reports the Wall Street Journal . Restaurants are empty. Shopping malls are not even attracting strollers and gawkers – let alone people with money to spend. Auto lots are so quiet the salesmen take turns pretending to be customers – just to keep their skills at-the-ready. Even the private jet business is in a tailspin." (The Daily Reckoning)

Personal consumption is down, unemployment is rising, manufacturing is slowing, and commodities have taken a record plunge in the last few weeks. The telltale signs of deflation are everywhere.

Hope you got more than Social Security, did you not hear John McCain's statement in the debate with Obama, he was going to cut Medicare and Social Security? http://sayanythingblog.com/entry/mccain_wants_to_c... http://www.aflcio.org/issues/politics/mccain_retir... http://wonkroom.thinkprogress.org/tag/social-secur...

What they do for all the other vast social programs, like health care: tax us, inflate the currency, and increase the nation debt.

Going to the Federal reserve and printing it up.

Republicans will just print more money.