Congress apparently raised the debt limit on Thursday, New Year's Eve.

Congress raised the debt limit enough to keep borrowing through February.

What happens then? Either the debt limit is raised again, or not.

Some may wonder why no one saw this coming.

Here is something that might be relevant, written October 2007:


U.S. Treasury, Citibank and other large banks have been working on some "short term funding problems," to the tune of $70-100 billion. Wow, that IS A LOT of money, over the short term.

Banks May Pool Billions to Avert Securities Sell-Off.

The Long Term Capital Management (LTCM) bailout was "only" around $5 billion, back in, what, 1997?

I wonder what ends up happening in the longer term. Can they really wind this down a bit at a time, eh?

Any idea how long it will be before short-term rates go UP? Or maybe the folks caught up in the credit crunch will be able to see to it that they can super-inflate their way out, for ever and ever, amen!?

Gee, I guess I should have done multi-$billion short term borrowing, "investing" the proceeds in longer term assets, betting that I could always keep the short term debt rolled over?

It seems they can't lose?! Either make a fortune, or get bailed out, or BOTH!!! If you will simply borrow ENOUGH BILLIONS, you're "TOO BIG TO FAIL!"

I think Ben might soon get a new nickname--- Cap'n Credit Crunch! Or maybe he'll still be Helicopter Ben (one wag recently said he'll be called B-52 Ben! imagine all those dollars exploding! HAHAH!).

Trying to stay cheerful here, but I'm afraid we are all freaking doomed, either way it goes, kiss the value of dollars goodbye, it seems they are going to continue to be worth less and less until short term rates are raised, and then the cow pies hit the windmill!

Mogambo Guru had an item about the Painted Rock Dollar Index Predictor. Pretty simple, paint a dollar sign on a rock, hold it out in front of you with your eyes closed, open your eyes and your hands and see what happens.

Well, OK, things may not be QUITE that bad.

Interesting to see some of Bernanke's latest words:

"A full recovery of market functioning is likely to take time and we may well see some setbacks." - Ben Bernanke, Fed chairman

Translation: We are freaking doomed!

I saw someone say that the SIV bail-out fund amounts to putting lipstick on a pig.

I am thinking the $100,000,000,000.00 "super conduit fund" is just window dressing for a remake of the old play "Credit Crunch!" As I recall, it's a play in two parts:

Act I: Liquidity Crisis! Major actors include Central Banks, playing the part of Lenders of Last Resort. The plot revolves around something called Asset Backed Commercial Paper, ass-paper for short. Suspense builds near the end, when the games begin! -- Old maid, Hot Potato, Musical Chairs, and Pin the Tail on the Donkey!

(Are we right about there, now, do you think? And is the biggest donkey Citibank? Or who?)

Act II: Solvency Crisis! Major actors here are a variety of companies, who got too high at the party, that were using A LOT OF OPM! (Other Peoples' Money!!!).

The final scene includes the suspense of waiting to see who overdosed-- and whose dead bodies float to the surface. Ending with obligatory "investigations" into who was responsible for the deaths, which, as everyone knew all along, can be caused by OPM overdoses.

"Nobody else is to blame. They did it to themselves, your Honor!"

Moral of story—Liquidity can't solve Insolvency.

Maybe there will be some new twists to the plot this time, but the basic story line already appears to be baked in the cake, or is that half-baked? hehe!

I have to laugh about this; otherwise I get depressed thinking about it. I guess the suspense is intriguing me. When this is over, I've promised myself to trade it in for a brand new obsession!


(...end of my Oct 2007 writing)

Perhaps when I wrote that in October of 2007 it was a bit early, timing is difficult, but I laugh when people say, "no one saw this happening". Lots of people did.

Here we are, a couple years later. As of Dec 31, 2009, Congress provides the ability to borrow through February, 2010. (See the WSJ article, I think that's what it said, tell me if I'm wrong, please!)

Perhaps something historic is on the horizon.

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