Thread: FEDS Bailed out CHINA not the US

Feds bailed out China, not the US

The Fannie-Freddie rescue will work out great for emerging markets abroad, but it's going to kill us here at home. You might find some relief by investing in a handful of recommended foreign stocks.

Latest Market Update
October 10, 2008 -- 13:30 ET [BRIEFING.COM]

By Jim Jubak

The U.S. government's takeover of mortgage market makers Fannie Mae (FNM, news, msgs) and Freddie Mac (FRE, news, msgs) will lead to a rapid recovery in the real-estate market, a rebound in economic growth and a surge in lending by a newly confident banking sector.

Yep, the takeover and restructuring of the two U.S. mortgage giants is a great thing -- for China and for many other developing economies of the world.

The case for putting more of your portfolio to work outside the United States was very strong even before the Treasury announced its scheme. After the deal, I think it's imperative that investors with a time horizon of more than six months move money into overseas assets.

Not right away, though. We're still in a global bear market for stocks. But sometime within the next six months, I think investors will get an all-clear on overseas markets, especially in developing economies. After spelling out the logic of my worldview, I'll end this column with five stocks to add to the watch list (at bottom left on this page) that I started with my previous column.

Bad for us
How is the deal cobbled together by Treasury Secretary Henry Paulson, the former Goldman Sachs (GS, news, msgs) CEO, bad for U.S. stocks and bonds and for the U.S. economy? Let me count the ways:

The deal adds $5 trillion in debt to an already stressed national balance sheet. That basically doubles the U.S. national debt and can't help but push the U.S. dollar lower and U.S. interest rates higher in the long term. The U.S. government is going to have to sell more Treasury bonds to cover its new debt.

Taxpayers are on the hook for somewhere between $25 billion and $200 billion. That's money that will have to come from higher taxes or from more government debt.

The need to sell more debt to fund this takeover will lead to higher interest rates in the Treasury market. (This is besides the rising tide of the annual federal debt. The Congressional Budget Office puts the deficit at $407 billion for fiscal 2008 and a record $438 billion for fiscal 2009.) Treasury yields are the benchmark for everything from mortgages to credit cards to corporate loans. Higher interest rates on Treasurys will push up mortgage and other interest rates.

http://articles.moneycentral.msn.com/In ... he-us.aspx

Kinda makes a person sick to their stomach, does'nt it?

Originally Posted by April

Kinda makes a person sick to their stomach, does'nt it?

Yeah, chunk-blowing sick!