A $Trillion here and a $Trillion There....

U.S. Debt May Grow $1 Trillion on Rescue, Barclays' Pond Says
By Sandra Hernandez

Sept. 19 (Bloomberg) -- The U.S. may have to borrow an extra $700 billion to $1 trillion to fund the biggest rescue of the financial system since the Great Depression, according to Barclays Capital Inc.'s Michael Pond.

Federal takeovers of Fannie Mae, Freddie Mac, and American International Group Inc.; the central bank's expansion of lending to financial firms; and a slowing economy will add $455 billion to the Treasury's borrowing needs, the New York-based interest-rate strategist estimated. Pond said Treasury Secretary Henry Paulson's plan to rid banks of ``hundreds of billions'' of troubled assets would bring the amount to $700 billion assuming the plan costs $200 billion.

``We could easily add up to an additional trillion to the outstanding Treasury debt just from the initiatives announced over the past couple of weeks,'' said Pond, ranked the best Treasury Inflation-Protected Securities analyst in 2008 by Institutional Investor magazine.

The government's liabilities swelled in past weeks as policy makers sought to arrest a growing financial crisis by taking over financial institutions threatened by a shortage of capital.

The Treasury on Sept. 7 took over mortgage-finance companies Fannie Mae and Freddie Mac and said it would buy mortgage-backed debt in the open market. The Fed this week boosted its Treasury auctions to bond dealers by $25 billion, loaned $85 billion to the insurer AIG, and quadrupled the amount of dollars foreign central banks can auction to $247 billion. Paulson today said the government will buy illiquid assets from banks' balance sheets and insure money-market mutual fund holdings.

Deficit Widens

``The odds of the deficit becoming enormous are certainly there,'' said Nils Overdahl, a bond fund manager in Bethesda, Maryland, at New Century Advisors, which oversees $500 million. ```I suspect you will see issuance at a variety of maturities.''

The deficit will likely widen to $650 billion in fiscal 2009 because of the U.S. rescue of Fannie and Freddie, analysts at JPMorgan Chase & Co. wrote in a Sept. 12 report.

Over the next decade, the gap between spending and receipts will swell to $5.3 trillion, Goldman Sachs Group Inc. analysts wrote Sept. 10, revising a previous forecast of $3.6 trillion. The non-partisan Congressional Budget Office forecast a record $438 billion deficit for 2009 on Sept. 9.

``The deficit will soar to enormous proportions,'' said Lou Crandall, the chief economist at Wrightson ICAP LLC in Jersey City, New Jersey. ``Even before this week's events, estimates based on visible factors were pointing to a deficit above $500 billion next year, with the prospect of billions of mortgage- backed securities on top of that.''

To contact the reporters on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net

Last Updated: September 19, 2008 13:40 EDT

What can you do anyway, if Paulson comes out on Sunday and says that under the current regulatory and Treasury budgetary constraints a system wide rescue can not be simply executed and the market crashes on Monday?!?

The next time the GM goes down, its screwed ...

First they took away the uptick rule ...

Now they've declared war on short sellers ...

What can be next?

cheers,

john

Editorial- The Socialists Killed The Short Sellers

There was a perverse honor in being a short-seller. It was an honor among thieves, but the group usually made lots of money by taking significant risks.

Short-selling was based on one of the foundations of capitalism. Making money betting on disaster is just as much a part of the economy as taking the optimist's side.

Banning short-selling in financial stocks, which both the US and UK have done, will halt the activities of the so-called naked shorters. These firms short shares without borrowing them from other firms. They are required to do that borrowing because it is the basis of their risk. If the stock they borrowed goes up, they have to pay the difference of what the original owner would have made.

Killing short-selling buries naked shorting. It also demolishes the entire market for legitimate gambles that a stock will go down. It subverts one of the most important checks and balances of equities trading.

The regulators feel that poisoning part of the system is the only way to save the whole market. No one will ever know if that is true. Free marketers such as George Soros felt that the whole bloody mess should be sorted out on its own and that the government should simply stand by and watch the world burn. Soros and his ilk were voted down and banned from the property.

Short-selling was always a dirty business, and now the government has decided that it is no business at all.

Financial stocks will rise on the news that the system for betting against them has been crushed. In the process of the shares going higher. there will be very little left to tether them to the earth.

Exuberance will have its day, but it may be that when the next set of banking and brokerage quarterly losses are announced there will be another round of crashing share prices. The shorts will not have been permitted to do their jobs.

Douglas A. McIntyre
http://www.247wallst...socialists.html

Edited by SilentOne, 19 September 2008 - 02:54 PM.

a 1 quadrillion $ loan is all we need and we can pay off the whole mess with change to spare. Why talk peanuts? Think BIG !!!!

"A $Trillion here, a $Trillion there... pretty soon you're talking real money"... Of course when that quote was fresh, it was "Billion"...

Actually the cost of a $1.5T rescue is about $2000 per year for the next 30 years for each one of the 52M households in US, if financed in T-bonds at 5.75%. This is about $3T including the interest, or about twice the troubling amount. The real opportunity cost of not investing $2000 per year for a family for anything better than paying off debt is probably around $5T, or about three times the amount adjusted by 3% yearly inflation...

So.......let me get this straight...... Our government has announced a $1 Trillion bail out plan for the bankers, with money we DON'T have? (In case you are living under a rock, our national debt is near $10 Trillion & our yearly budget deficits are around $400-500 Billion) Where will this money come from? Tax payers? The 5% rich? China? OPEC? And how do we repay the principal & interest? Will taking on more debt cure a problem caused by too much debt in the first place? Is this the "new economy"?

It is a success story when you are actually given with the real life examples...


It is an achievement to actually extract almost $100,000 per family in principal and interest AFTER inflation over the next 30 years without actually putting a gun to their heads to sign the papers...


Basically the gov't is signing up everyone with a second mortgage...

One way or another, America will default on its debt and the world will just have to live with it.

Bottom line it will mean a lowered lifestyle for us going forward and especially for our children and children's children. A default would be catastrophic for our ability to borrow ANY amount from anyone, effectively destroying the economy for generations. Who ultimately pays for it? I think it's a classic example of "Morton's Fork".

http://en.wikipedia.org/wiki/Morton's_Fork

Everyone pays for it. No-one gets a free ride on this screw-up when all is said and done.

U.F.O.