The Guest Blog

Busch: Global Thirst For Capital


In the global quest for revenue and funding, three new entrants are making a splash. 

The European Bank for Reconstruction and Development (EBRD) has appealed for a 50% capital increase to mitigate the impact of the global economic crisis on central and eastern Europe according to the FT . They are asking for an extra E10bn ($14.5bn) to allow it to expand its lending and compensate for a sharp decline in private capital flows into the former communist countries.  The EBRD is controlled by 60 countries.

BNP Paribasjoins the long list of global banks attempting to buy their way out of government ownership by raising capital.  France's largest bank announced that they would launch a E4.3 billion rights issue that would be used to buy back E5.1 billion in shares the government bought to help BNP during the crisis.  BNP joins J.P. Morgan, Goldman Sachs, and Morgan Stanleyin repaying the government for their assistance.

Lastly, the FDIC is going to propose today that  the bulk of the banking industry prepay three years' worth of fees to replenish the fund that insures trillions of dollars of customers' deposits.  According to the WSJ , the FDIC having banks pay up front for 2010, 2011 and 2012 could bring between $36 billion and $54 billion to the government agency, which insures deposits at more than 8,000 banks.  The WSJ said it couldn't be learned when the assessments would have to be prepaid.  Why is it when I read this new funding scheme, I think California?  Here's the question for Ms. Bair: "What happens after the FDIC goes through this funding and needs more?  2013 to 2016?"

On now:

In the United States, this demand for revenue/funding will grow exponentially should the Congress pass a health care "reform" bill that increases spending without finding a revenue source to cover the costs.  One of the costliest components of the bills circulating that will eventually have to be reconciled is the public option.  However, the bill will mandate a large increase in Medicaid spending that the individual states will have to support.  Remember, US state governments received payments from the $87 billion stimulus plan to help them with Medicaid.

EBRD, BNP, and FDIC indicate a global search for funds and revenue from three separate areas of the global economy.  This demand will grow more acute as we head into 2010 if the global economy fails to rebound consistently.  There is a waterfall effect developing from government economic spending and the resulting bill coming due in the form of government deficits.  To deal with this demand, the tax base will need to be increased or the tax level will go up.  I expect both to happen globally. 

Can bell bottom jeans, men's facial hair, and 1970s stagflation be far behind?


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Andrew B. Busch is Global FX Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and and you can follow him on Twitter at .