Freddie and Fannie may be broke

Freddie Mac and Fannie Mae, which are GSEs or government-sponsored enterprises, may be technically insolvent. They have about $5.5 trillion in outstanding mortgages between them and only $80 billion in equity. Technically, the US government guarantees these loans but only implicitly. If Congress decides to guarantee them explicitly, the government will have debts equal to our GDP, give or take a few hundred million. If Congress decides NOT to back these mortgages, they may render 4-10 million families homeless as their homes are foreclosed.

Standard&Poor’s, Moody’s, and other rating agencies have been saying since Reagan was president that they would downgrade the creditworthiness of the US government if the US ever explicitly guaranteed Freddie and Fannie mortgages. Guess what, folks. That reckoning may be about to come due/true.

I would *strongly* advise anyone against major purchases at this time, or locking yourself into purchase plans or layaways of any sort for the next few months. Even frivolous stuff would be inadvisable- it is reasonable to ask “would I buy this if there were two more zeroes just in front of the decimal point?”

This condition is likely to persist until after the election at the earliest, and more likely to continue into the new President’s next term. Hang onto your hats, everyone. And your wallets.

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