RIP U.S. Dollar

Anyone remember Jim Bunning?  If you're as old as me, you may remember he pitched for the Phillies, among others.  After a long, distinguished career as a pitcher, he embarked on a long, UNdistinguished career as a Congressman.  In fact, in 2006, Time called him one of the country's 5 worst senators.  But I digress.

Today, Congress voted to bail out Fannie Mae and Freddie Mac.  This was not surprising, as the Chinese and others hold hundreds of billions of their bonds, so the two GSE's could not be allowed to fail.  But the government also decided to enable them to guarantee virtually all of the mortgages written from here on out.

Isn't that what got us into this housing mess in the first place?  Lending lots of money to people who had no intention or capacity for paying it back.  And now the government will guarantee all of the loans.  Risk-free lending, because if (when) anything goes wrong, the government (taxpayers) will pay for it.  FRE and FNM already guarantee more than $5 trillion of mortgages, and you can expect that number to grow substantially.

To put it bluntly, the dollar is toast.  The government is desperately trying to re-flate the housing bubble.  Ever try to blow up a balloon that's already popped?  Think the Chinese, Japanese, Arabs and others will be lining up to buy more mortgage-backed securities?  NO ONE is that stupid!

Which brings us to Jim Bunning.  Senator Bunning went and chewed out Fed Chairman Bernanke last week for his role in the mortgage mess:

http://www.youtube.com/watch?v=BFDlOzJGriI&feature=related

Treasury Secretary Paulson didn't come off too well, either, did he?  He kind of sounded like Ralph Kramden would have, if he had an MBA...homina homina homina...

The government says this new bill will cost $25 billion to guarantee those mortgages.  Right.  $25 billion to guarantee trillions of dollars of new mortgages to people who can barely fog up a mirror, much less earn a living, or make mortgage payments.

The most telling point in this entire debacle is that even Jim Bunning, one of the dimmest bulbs in the U.S. Senate, can see that this is bullshit.  The money will be created out of thin air...excuse me, by monetization of debt.  It sounds real nice when you use big, fancy words, and now my advanced degree in finance has been put to good use.

In other words, the dollar is toast.  Sometimes small and simple words work best.