US Treasury Interest rates are starting to accelerate up. The Geithner/Bernanke/Obama “let’s spend our way out of this” isn’t working. As interest rates go up, the fear will start to feed on itself.
If Interest Rates go up very much, companies that have sold Interest Rate Swap contracts are in serious trouble. Companies holding Interest Rate Swap contracts to protect themselves from increasing interest rates will be in serious trouble if their counter party fails. (think AIG)
The biggest loser today in the S&P 500 is ICE (Inter Continental Exchange), which is the place that trades in derivative contracts. ICE has been designated as the “magic pill” by Geithner as a the place where Swap Contracts can be turned into a tradeable commodity, backed by a central clearinghouse. But there is no entity that can possibly “guarantee” $562 Trillion in contracts – not even the U.S. Treasury. It isn’t going to work.
Acting in the way you would expect, as interest rates start to go up, money is starting to come back into the United States, and the dollar strengthened substantially after losing a lot of its value over the past few weeks.
And finally, the rule of law officially ended today . As was widely expected, the US Appeals Court refused to step in front of the speeding Chrysler “rescue”, and told the secured creditors to go pound sand. 100 years of procedures governing bankruptcy and property rights is out the window – Tim Geithner gave the company over to Fiat and the UAW for essentially nothing, plus threw in a big pile of money from the US Treasury,
*** Update ***
The pension plans have filed an emergency appeal to the U.S. Supreme Court to extend the stay at midnight Saturday night. The Supreme Court has until 4 PM Monday to slam on the brakes. The Fiat deal was deliberately written as an “emergency” that if it doesn’t happen on Geithner’s schedule, Fiat gets a financial windfall. I hope we learned something from the $700 billion emergency last fall.