The yield curve and credit-default swaps tell the same story: The U.S. can't borrow trillions without paying a price.
WHAT ONCE WAS UNTHINKABLE has come to pass this year: massive bailouts by the Treasury and the Federal Reserve, with the extension of billions of the taxpayers' and the central bank's credit in so many new and untested schemes that you can't tell your acronyms or abbreviations without a scorecard.
Even more unbelievable is that some of the recipients of staggering sums are coming back for a second round. Or that the queue of petitioners grows by the day.
But what happens if the requests begin to strain the credit line of the world's most creditworthy borrower, the U.S. government itself? Unthinkable?
American International Group (ticker: AIG), which originally had to borrow what was a stunning $85 billion from the Fed to keep it from cratering in September, upped the total Sunday to $150 billion.
Monday, Fannie Mae (FNM) reported a $29 billion third-quarter loss, far in excess of forecasts, raising the specter that the mortgage giant may need more money after the Treasury pledged to inject $100 billion in preferred stock financing in September.
Meanwhile, American Express (AXP) received Fed approval to convert to a bank holding company, joining the likes of Morgan Stanley (MS) and Goldman Sachs (GS), that have a direct pipeline to borrow from the Fed or the Treasury's TARP, the $700 billion Troubled Asset Relief Program.
And, of course, Detroit is looking for a credit line from Washington. General Motors (GM) Friday warned it could run out of cash next year without a government loan. GM plunged another 23% Monday, to 3.36, as several analysts helpfully recommended selling shares of the beleaguered auto maker that already had lost more than 85% of their value.
Visiting the White House Monday, President-elect Obama pressed President Bush to support emergency aid for GM and other auto makers. The prospect for federal aid for GM ironically weighed on its shares as one bearish analyst said the price of the bailout could be a wipeout of common holders.
Be that as it may, it's all adding up. If the late Sen. Everett Dirksen were around today, he might comment that a trillion here, a trillion there and pretty soon you're talking about real money.
Trillions are no hyperbole. The Treasury is set to borrow $550 billion in the current quarter alone and $368 billion in the first quarter of 2009. "Near-term pressures on Treasury finances are much more intense than we had thought," Goldman Sachs economists commented when the government announced its borrowing projections last week.
It may finally be catching up with Uncle Sam. That's what the yield curve may be whispering. But some economists are too deaf, or dumb, to get it....MORE
