Catastrophe in the Making

This is huge!

While the Dollar today is collapsing:
The price of crude oil has set more and more new records, surpassing $147/barrel for the first time:
And the stock markets have plunged. It is a miracle the Dow isn't down 300-400 points:

Why?

One reason why stocks are plunging, aside from the price or crude oil, is that it appears that Fannie Mae and Freddie Mac are insolvent, according to one of the former Fed governors in a statement this week. What makes this such stunning news is that these two companies were created as quasi-government agencies to provide mortgages for the American people. Fannie Mae alone has mortgage loans on the books for more than $5 trillion (yes, that's trillion with a "t"). Their debt is backed with loan guarantees by the Federal government and the tax-payers are on the tab for the losses. No other company in America has these loan guarantees. This is not just the solvency of two semi-government agencies at risk here. It is potentially the risk of the faith and credit of the United States government! And now, Fannie and Freddie are both insolvent! This is HUGE!

Rumors are even circulating this morning that the Bush Administration is considering taking Fannie and Freddie into receivership because they are so deeply in over their heads.

This truly underscores the gravity of the credit crisis in this country, and the potential economic impact. It is also sending treasuries plunging today because of the implication that it will force the Federal government to sell more bonds and that interest rates will be forced to go much higher. Treasuries have been in an uptrend for the past several weeks, so this is a stunning change for a single day. Here are the charts for treasuries this morning:

No one should underestimate the impact of this situation. This is an earthquake! I would expect some action from the Federal Reserve and/or U.S. Treasury very quickly to attempt to stem this latest crisis. This is HUGE!