the darkerside to rants

How bad do you think thinks have gotten if even the cheerleader of any “economic progress” The Economist starts writing about the US having a chance to default on it’s debt?

If Congress approves this package, the Fed will have more authority over the agencies. But that will give the central bank another headache. If an institution is struggling, the normal answer is to shrink its activities and wind it down slowly. But that is the last thing that the housing market needs right now.

With the credit crunch, Fannie and Freddie have become more important than ever, financing some 80% of mortgages in January. So they will need to keep lending. Nor is there scope to offload their portfolios of mortgage-backed securities, given that there are scarcely any buyers of such debt. And if the Fed has to worry about safeguarding Fannie and Freddie, can it afford to raise interest rates to combat inflation? American monetary policy may be constrained.

The GSEs are not the only liability for the government. IndyMac’s recent collapse is the latest call on the Federal Deposit Insurance Corporation (FDIC). The FDIC has some $53 billion of assets, so it is better funded than most deposit-insurance schemes. But if enough banks got into trouble, the government would be on the hook for any shortfall. The same is true of the Pension Benefit Guaranty Corporation, which insures private sector benefits, but is already $14 billion in deficit.

In the end, the turtle at the bottom of the pile is the American taxpayer. But that suggests that, if Americans are losing money on their houses, pensions or bank accounts, the right answer is to tax them to pay for it. Perhaps it is no surprise that traders in the credit-default swaps market have recently made bets on the unthinkable: that America may default on its debt.

Read the whole thing.

I have started a new Category “Debt Watch”. It is essentially some loose / random thoughts and links on what is currently going on in the markets around the world.

In case you’ve been asleep at the wheel: The ones who were supposed to be “experts” were taken over by plain and simple greed, and the end result of it is now that someone is going to get to hold the bucket. Take a guess who that may be.

Here’s the “first” (I had mentioned it before, but I am not going back in time) posting towards this topic.

Enjoy your stay.