Freemarket principles appear to be low on the agenda these days.

The bailout of government-chartered mortgage giants Fannie Mae (NYSE:FNM) and Freddy Mac (NYSE:FRE) is on course. Thanks to the continuing cooperation of the US taxpayer, of course, who, whether he likes it or not, is footing the bill for Hank Paulson’s ‘rescue’ plan.

What Hank isn’t shouting from the rooftops, says The Mogambo Guru, is that a big chunk of Fannie and Freddie securities is owned by foreign institutions. Could this be why Hank is so keen to bailout the stricken GSEs?

It’s something to think about when gangsters own your “paper”, as I infer from Bill Bonner here at The Daily Reckoning writing, “Today, fully 21% of Russia’s monetary reserves are invested in the obligations of Fannie, Freddie and the Home Loan Banks. And the largest holder of Fannie and Freddie debt is another friendly foreigner, China”, which he says, “owns $376 billion worth of U.S. agency bonds. Altogether, foreigners hold $1.3 trillion of them.”

In fact, it is said that purchases of Fannie/Freddie debt by foreigners covered a third of the U.S. current account deficit of $700 billion over the last year! Hahahaha!

But the Fannie and Freddie bailout isn’t the only problem facing the US. There’s also the small matter of $100 trillion dollars worth of unfunded liabilities from Medicare and Social Security…

And anyway, this $9.5 trillion dollar national debt is pretty much chickenfeed when looking at bigger intractable problems, as we gather from a speech given by Richard Fisher, the head of the Dallas Federal Reserve Bank, who said, “Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon.”

First off, he is wrong; it comes to infinity at the infinite horizon, not some piddly $99.2 trillion, and you would think that the president of the Dallas Federal Reserve Bank would know such a thing. And then you realize that total Gross Domestic Product (GDP) of the USA is only about $13 trillion, and suddenly this seems like a lot more than is even comprehensible! Your brain whirls! Income that is 0.013% the size of liabilities!

Naturally, the mind cries out in its anguish, “No! No! No!” as it is staggered by the sheer enormity of $100 trillion of liabilities, and you wonder aloud, “Has there been a mistake in addition?”

Apparently not, as the total breaks down as, “Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.” What? The prescription drug benefit is now going to cost more than Social Security itself? Yikes!

Apparently, he does not want to get into a discussion about that, and tried to impress me by correctly saying, “We know from centuries of evidence in countless economies, from ancient Rome to today’s Zimbabwe, that running the printing press to pay off today’s bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid”, which is exactly true and I am surprised to hear him say that!

And it almost makes you proud when he says, “Purging rampant inflation and a debased currency requires administering a harsh medicine. Even the perception that the Fed is pursuing a cheap-money strategy to accommodate fiscal burdens, should it take root, is a paramount risk to the long-term welfare of the U.S. economy. The Federal Reserve will never let this happen. It is not an option. Ever. Period.”

Then you are driven to ask, “If so, then why in the hell are we here, you lying, complicit, moron Federal Reserve bastard?” He never answered me, which is all the answer I need, and it is all the justification you need to buy as much gold and silver as you can.

It is going to be bad. Very bad. Very, very bad. Ugh.

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Source: Mr. Foreign Investor’s Neighborhood