The two main problems with the financial system are debt, as Peter Eavis argues, and inflation as Jim Puplava illuminates in his commentary. The government can expand credit and create money, ensuing that the price of something, somewhere, will go up, but they have less control over relative prices. As long as the price inflation remains in the financial markets, things are fine, but if it leaks out into the CPI, then that threatens to topple the financial ponzi schemes known as the stock, bond, and real estate markets. Hence the brilliance of the GSE strategy, using Fannie and Freddie to channel credit into the housing market.
But that may be about to come undone as well. Barron’s last weekend did a cover story ($-paid) on the accounting maneuvers that Fannie has been employing to hide its disastrous lost of equity through derivatives.
