Orgy of Debts

I have just seen the greatest borrowing binge of all time – an orgy of new debt offerings that can potentially kill bond markets, drive interest rates up and pound Wall Street and Main Street in combination to a pulp.

The record smashing amount to date is only the tip of the iceberg as Washington may need to borrow more than US$2 trillion, if it is to finance an US$850 billion fiscal deficit, US$500 million in bad asset and roll over maturing Treasury securities. This is not part of the already whopping US$2.7 trillion bills to cover the bailout loans, investments and commitment by the government so far.

Details – TARP – US$700 billion, Bear Stearns – US$29 billion, Detroit Big Three – US$25 billion, AIG – US$123 billion, Fannie and Freddie – US$200 billion, Mortgage-backed securities – US$144 billion, FHA Rescue Bill – US$300 billion, JPM for Lehman Brother – US$87 billion, Fed’s TAF program – US$200 billion, commercial papers – US$50 billion and Fed currency swaps program of US$740 billion – IN TOTAL – US$2.7 trillion.

This means a plunging bond prices and potentially I am staring down the barrel of one of the most devastating bond market crashes ever.

The real estate crash is still accelerating. One in very four homeowners is now under water. Construction spending has plunged three times in the last four months. US unemployment is exploding and consumer loan defaults are spiraling higher throughout the country.

Of course, you may have heard the chuckleheads on CNBC line up to say: ‘The government will ultimately end up making money on this bailout’? The idea is that as the housing market recovers, the government will sell its holdings – all that worthless mortgage papers from the banks and recoup its money.

SURE, WHEN PIGS FLY, AND ELEPHANTS CLIMB TREES!

Do you realize that over the past 8 years, Bush added approximately US$5 trillion to the national debt ceiling already.