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America’s $47-trillion bubble of debt has burst.
America’s $180-trillion balloon of derivatives has popped.
And all the president’s men cannot put them back together again.
Last year, they tried three different mortgage work-out plans. This year, they tried a massive economic stimulus package. They resorted to a myriad of unprecedented lending facilities. They even bailed out Bear Stearns, Fannie Mae, Freddie Mac and AIG. Each attempt was more radical than the previous. And each attempt failed miserably.
Now, appearing before the American people at the White House Rose Garden, they’ve declared that they’re going to try again, this time with an even bigger, more ambitious plan: A structure to buy up the bad debts of sinking banks … a guarantee for money market funds … a prohibition on certain short selling activities.
And with all this, they say, they’re finally going to “restore confidence” and “end the debt crisis.”
But there are a few, not-so-small dangers they’re not talking about plus a few nasty surprises, shocks and wake-up calls coming as early as next week:
The fear factor: Their actions are so much more extreme than anyone expected … they’re inadvertently sending the message to smart investors and speculators around the world that the crisis must also be far more extreme than anyone expected. Rather than reducing uncertainty, the president’s men are creating more fear.
The selling stampede: These investors are more anxious than ever to sell and get the heck away from risk. They’re waiting for the knee-jerk market rally to end. And they’re getting ready to sell with both hands.
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Leading lenders to water: Millions of Americans continue to default on their mortgages. Hundreds of millions of homes continue to fall in value. So the risk of lending today to consumers is astronomical.
With this backdrop, Mr. Bernanke and Mr. Paulson can pump all the money they want into sick and dying lending institutions, but there’s nothing they can do to get the lenders to drink — to lend that money to high-risk borrowers.
No free lunch: Where do the Treasury, the Fed and Congress get the money? Contrary to popular myth, they cannot just “print” it out of thin air. They have to either borrow the funds from investors or raise it from taxpayers.
$1-trillion tab: Just for the rescues and bailouts announced to date, the most conservative estimate of the bill is $1 trillion. The federal budget deficit is already projected to be well over $400 billion. These new measures could easily double and triple that deficit.
What’s Next?
On Friday, in a special edition of Money and Markets, I answered your urgent questions on Washington’s latest moves. Now, let me ask you a couple of questions:
Q: What happens when the government tries to borrow a massive sum like $1 trillion? You know the answer: They automatically drive up interest rates … crowd out other borrowers like corporations, consumers or local governments … and make the entire debt crisis far worse.
Q: What happens when the government tries to raise the money with higher taxes? You know that answer too: Tax hikes can only crush the already-mangled consumer … and make the recession far worse.
And This Is Supposed to Be Their Master
Plan to Save America from More Misery?
Not only won’t it work … but to the degree that it does have some impact, that impact can only backfire.
Already, on Friday, the interest rate that the U.S. Treasury must pay to borrow 10-year money surged by 33.2 basis points — one of the greatest single-day rises in history and an early omen of far sharper rate rises in the future.
Also on Friday, gold resumed its surge — a warning to all governments that seek to defy the power of free markets.
These dramatic moves in interest rates and gold are telling you that if there ever was a time to position yourself for protection and profit from the next phase of the debt crisis, this is it.
Our recommendation is unchanged: As we’ve told you from the outset, every time the government attempts to fight this debt crisis spurs a temporary rally, you have a golden opportunity to sell any vulnerable stocks you may still have.
Plus, it’s also the very best possible opportunity to position yourself for huge profits as the crisis continues to spread.
Your next urgent step: View our 1-hour video “Plague to Pandemic” before we take it offline early next week.
It shows you what you must do to protect your wealth and multiply your money … as America’s debt pyramid continues to collapse … and as Washington continues to stumble in its efforts to put it back together.
Indeed, Washington’s latest effort to goose up stock prices gives you a unique window of opportunity to find true safety and position yourself for profits before the next big decline.
But never forget: As soon as investors around the world start selling en masse, that window is going to snap shut. So turn up your computer speakers and click this link for the video before it’s too late.
Good luck and God bless!
Martin
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Christina Kern, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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