“Rhonda is in a panic.

The two-year introductory rate on her adjustable mortgage is about to expire and send her payments soaring. She thought she could refinance to a more-affordable loan, but the rates she’s being quoted are just as high.

“So I then decided I would just sell the house and get out of it,” Rhonda wrote in an e-mail. “WRONG! The houses in my area are selling for around $20,000 less than what I owe!”"

Rhonda and millions of other morons who have over-borrowed. And are now going to be screaming for someone to bail them out. The negative equity epidemic

Although the broad indices remain locked in a trading range by the programs, action elsewhere is unusual. Interest rates are rising, both on the short end due to the Fed, but now on the long end as well (the ten-year is over 5%). The dollar is under pressure versus nearly everything, even the euro. June crude is well over $70, gasoline is over $3 in many markets, wholesale unleaded is $2.11. Gold is over $600, with similar moves in other base and precious metals, including of course Dr. Copper.

Market internals for equities are unusual, the so-called “Hindenburg Omen” signal has been occurring recently. This signal has often, but not always, presaged declines. It is based on seeing a simultaneous expansion of both new highs and new lows, supposedly indicating confusion amongst traders as to market direction and therefore loss of momentum.

We have a rookie Fed Chairman, Ben Bernanke. How about a brief history of rookie seasons for Fed Chairmen?

Marriner Eccles took office Mar 19, 1936. We then had Roosevelt Recession and the S&P lost 54 %.

Thomas McCabe took office April 15, 1948. It was last leg of bear market. S&P lost 21%

William McChesney Martin, Jr. took office April 2, 1951. We had a bond market crisis and the S&P lost 15%.

Arthur Burns took office Feb 1, 1970. It was last leg of bear market. S&P lost 23%.

G. William Miller took office Mar 8, 1978. We had a dollar crisis and the S&P lost 14%.

Paul Volcker took office Aug 6, 1979 and we had “Saturday Night Massacre”. S&P lost 10%.

Alan Greenspan took office Aug 11, 1987 and then we had a stock market crash. S&P lost 36%.

Reuters: “Answering audience questions after a speech to the Dallas Friday Group, (Dallas Federal Reserve Bank President Richard) Fisher said the U.S. dollar is a “faith-based currency” dependent on the credibility of a central bank.”

If that doesn’t scare the daylights out of people, then I don’t know what else will.

The federal government is running a huge deficit, and it will only get larger with the entitlement programs, such as the Medicare drug benefit, that have added to future entitlements. This means that the government will be forced to issue similarly huge amounts of debt to finance these payments. The fundamental question is, who will buy this debt? There are really three possible answers to this question. One is private investors - banks, pension funds, etc. The second answer is foreign central banks. Receiving a steady flow of dollars from the US trade deficit, up to now these have been buying US treasury debt with the flow. The third alternative is the Federal Reserve, who simply prints the money to buy the debt. This is the fundamental question which will drive the economy over the next months and years.

Private investors left the scene some time ago, although the re-introduction of the 30-year bond has enticed some pension funds to return, because the long bond allows them to match the duration of their obligations better than most other fixed-income alternatives. Foreign central banks had been shouldering the bulk of the burden until about a month ago, when their purchases started to fall off. The excessive growth in the US money supply has made many of these banks concerned about the future value of the dollar and so they have grown increasingly reluctant to buy. The last alternative, the Fed, looks to be the buyer of last resort. Of course, the big problem is that Fed monetization of government debt is inflationary. So Mr. Bernanke has to either allow rates to climb now, to make Treasury paper more attractive to private buyers, or expect them to climb more later as his “helicopter money” buys less and less..