Scrivener.net

You'll recall tales of how the mortgage crisis (and thus the recession) was caused in no small part by subprime borrowers being lured by low, low interest rates into taking out loans beyond their means. Then they discovered the low rates were only temporary, and when the rates were "reset" upward after a few years ... crash ... boom.

Which came to mind reading this...

We will pay for Fed's borrow short, lend long strategy

You can call it Uncle Sam's big fat ARM.

That's right -- the folks that brought the American taxpayer a debt clock that is ticking toward a November rendezvous with the $12 trillion mark are also financing that mother-of-all debt loads with trillions of dollars worth of securities that will come due before we know the winner of next year's World Series.

... the percentage of the growing debt pie that is being financed short-term (maturities of less than one year) has risen from 30 percent to more than 40 percent -- the highest level since 1980.

The conventional thinking in Washington is that with the Federal Reserve's interest rates at basically zero, the government should take every advantage of that -- and worry about the consequences later.

Trouble is, it's precisely that short-sighted thinking, you may remember, that put millions of Americans at risk of losing their own homes in recent years.

But while legions of homeowners are now prudently shifting back to the comfort and stability of 15- or 30-year fixed-rate mortgages, Uncle Sam is doing just the opposite.

... all this short-term borrowing by the US government ultimately creates a massive rollover risk, as trillions of obligations will need to be refinanced in the next year. What's more, it leaves the nation at the mercy of the credit markets, due to the very real potential that short-term rates could shoot up, a move that would add billions per year to the cost of debt service.

The financing hijinks also leave Fed Chief Ben Bernanke in a potential bind as the economy picks up. Any inclination on Bernanke's part to raise rates to tame inflation may be tempered by the higher debt-service costs that will ensue when he ratchets up short-term rates...

Intuitively, Americans understand how all of this will likely play out on Uncle Sam's books and on their own -- that's why demand for 30- and 15-year fixed-rate home loans nearly doubled compared to a year ago.

It's time Treasury Secretary Tim Geithner hears the wake-up call as well and starts to do the same. For all the well-placed concern about just how much we are borrowing, it may be how we are borrowing that triggers the next big economic crisis.