There are irregular miracles from God, the Creator of all, but there is no magic.  The US government can step forward and say, “We guarantee the liabilities of Fannie and Freddie, and take control of the companies.”  But who guarantees the US government?  In the economic world, there is always a cost for every action.

Yes, the US government will continue to borrow from the Saudis and their allies, who appreciate our military actions constraining their Shi’ite adversaries, and supporting their own regimes.  China wants to continue to “grow,” and they don’t care if they are paid back in “funny money” for now, buying Treasury securities with excess dollars.

The US Dollar rallied today, even as the government absorbed liabilities that are uncertain as to size, even though I think the eventual cost will be less than $200 billion.

Who doesn’t want to be guaranteed by the government?  The auto companies are in line, can I get in line too?  I could do amazing things with a $50 billion credit line from the government.  I would assemble a small empire of undervalued companies with earnings yields higher than what I would have to pay Uncle Sam in interest.

My point is this: when you take into account the structural deficit, funding for the wars, social security currently on the balance sheet (but not its increase in liabilities), Fannie and Freddie, and future demands for bailouts of homeowners and auto companies, where does the bailout stop?  Where does the willingness of foreigners to buy Treasury debt end?

I don’t know, and this is the biggest question facing the global debt markets now.  A century from now, a fellow resembling James Grant will write several popular books explaining the decadence of the era, and how the US squandered its leading position in the world by borrowing too much.

So, call me skeptical of the US Dollar and Treasury rallies today.  Those should reverse soon.