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Our choice: a bust-up or a command economy --- or, if we try real hard, both!

fOnly the Timing Is in Doubt

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A major systemic crisis became unavoidable after the revelation of GSE accounting irregularities ensured that mortgage guarantors Fannie Mae and Freddie Mac would no longer provide the mortgage/MBS marketplace a "backstop bid". Going back to 1994, the GSEs had repeatedly nurtured concurrent booms in mortgage lending and MBS speculation through their aggressive market turmoil-periods of MBS purchases and liquidity creation. Speculators had over the years become quite emboldened, but their source of liquidity in the event of trouble would be nowhere to be found in 2007.

I see ominous parallels to the mortgage/Wall Street finance bubbles with today's government finance bubble. First, the scope of "federal" government marketable debt issuance - approximately $2.0 trillion annually - has quickly reached massive proportions. Especially since little of this ("non-productive") debt is financing real economic wealth creation, there is a rapid deterioration in the quality of debt being sold. There are clear Ponzi finance dynamics in play.