Trillion Dollar Mortgage Time Bomb, US May Lose AAA

Uh oh. The U.S. could lose it's AAA rating...

The trillion-dollar mortgage time bomb: “S&P added that saving Fannie (FNM) and Freddie (FRE, Fortune 500) might cost so much that the federal government's AAA credit rating, the top possible rating, might even be at risk. If that was lost, then all federal government borrowing would become more expensive.”

This next part is kind of funny…

“Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor's recently placed an estimated price tag on this worst case scenario -- $420 billion to $1.1 trillion of taxpayer's money.”

Few? I believe the market has made quite clear that more than a few are predicting an imminent need for a bailout.

No matter. This bubble was so big and handled so poorly thus far, that it is more likely that costs will hit the high end of the range.

So, US GDP for 2007 was about $13.79 trillion. $420 billion would be 3.0% of GDP. $1.1 trillion would be about 7.9% of GDP. Considering the giant budget deficit that is currently being projected, even the low end of the range would be difficult to digest.

“This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. That cost taxpayers about $250 billion in today's dollars.”

The Savings and Loans Crisis resulted in the failure of 747 banks and contributed significantly to the large budget deficits of the early 1990’s.

U.S. Budget Deficit Hit $102.77 Billion in July: “The U.S. government's budget deficit nearly tripled in July from a year earlier, pushed in part by aftershocks from failed financial institutions.

The Treasury Department on Tuesday said the government ran a monthly deficit of $102.77 billion in July, up 182% from $36.45 billion in July 2007.

Outlays were $263.26 billion last month, up 27% from July 2007's $206.89 billion. Spending rose on a $15 billion disbursement by the Federal Deposit Insurance Corp. to cover deposits at failed financial institutions. Calendar shifts also contributed to the figures, causing the July 2007 figure to be lower by $19 billion. The $263.26 billion spending number was a record for the month of July.

Government receipts were $160.49 billion, down 6% from the $170.44 billion recorded in the same month a year earlier.”

So, revenues down, expenses up. On a chart, that would mean the wrong lines are going the wrong way.

“Year to date, the deficit for fiscal 2008 totaled $371.44 billion, 136% higher than the $157.42 billion for the same 10-month period a year earlier. Year-to-date outlays were $2.47 trillion, up 8% over the same period, and revenues were $2.09 trillion, 1% lower.”

Think about it. That's right now. The economy isn't even in a recession YET...