a) If your mortgage lender sells your paper, in a distress sale, the new lender can call the paper, and renegotiate the rates, if they think higher rates are appropriate. They may also reevaluate your ability to pay. This also includes REFI's, so if you bargained hard for that last 1/4 point you may find that you are made to buy it back at much higher rates. If your lender actually holds your paper, which is most CC's you should be a little better off.

b) Treasury has to backstop banks to make sure that transactions continue smoothly. If you have automatic deposits, and bill paying make sure you put enough money in your account to cover a few months, in case the deposits are held up. Yeah the bills we still get paid if you have any money in your account.

c) The transfer of payments in the currency exchange markets is most at risk, if you receive payment from any offshore entity plan accordingly.

d) Deflation is now the clear danger, if you are thinking of buyhing something, wait. If the Fed were to raise rates it would not be a surprise, fighting deflation requires inflationary policies. McCulley at Pimco wants to see the Fed do a massive intervention to the downside, that could be financial suidide.

e) If the Fed raises rates it may cause some initial panic, but that will pass, if they drop rates hard then the end of the world is put off another week, or until the election cycle is finished. Hopefully they will do nothing.

We need to save AIG, to keep the trains running. That much seems obvious. What happens this afternoon will go a long way to set the tone for the stock market, which leads the economy.

The Fed should raise rates a 1/4 point, and continue incrementally. Reasons for this are numerous. The private sector is no longer creating new credit, new credit is monetized, and that is reflected in rising money supply. The credit crunch has become a money supply crunch, which is deflationary.

Once before the Fed chose this strategy, and the markets rallied strongly.

A Fed rate increase would send the signal that the Fed is in charge of the process, once more. When the private financial sector took over debt creation, this process went out of control, and the Fed lost their ability to control the money supply.

If the Fed can engineer a rally in the market, they can rescue AIG, Lehman, and my aunt Martha, who clips coupons for a living.

Additionally the Fed funds rate is well below the real rates. Any rational Fed chief realizes that sooner or later this divergence has to be resolved. Now is that moment.

A 1/4 point is small enough to allow for minimal shock and awe, and give it a while to sink in. This is an election year, and its impossible to have reasonable debate on the issues, and a fair election, while the US economy is collapsing.

Are we heading for DOW 14K by election day? yeah I think so, a lot of things point toward it. The financials have hit bottom, and further gains are predicated on new credit finding a home, and that implies new jobs and more business spending. That implies wages increases, and pricing power and inflation.

Increasing money supply AND raising rates accomplishes this very necessary turn in the markets.

Any rate cut is death by inches.

Once all this money is loaned out at lilliputian rates, and take note, the banks borrowing this money are sitting on it, this money is parked in MM funds, short term rates, borrowed for next to nothing, to be leveraged out to the long end of the curve, when rates rise.

Secondly this is options expiration week, and the PPT and the FED like to manipulate the stock market at these critical moments, and would like to juice a huge short covering rally. Save AIG, hell, save the whole damned market, and you will save AIG.

Stay tuned, its going to be a bumpy week.

Has Obama ever been to the wall? Voters don't follow economic policy, until they see the results, but this Prisoner of War thread is beginning to irritate me. McCain was a political prisoner, and a guest of the North Vietnamese because they could parade him around as an example of the immoral, and often illegal, air war the US was waging against North Vietnam.

There were few enlisted prisoners, GI's received a bullet in the head as their sentence for capture. I'd like to see Obama dig him into McCain on this.

Incidentally the Vietnam war was funded with tax increases, Wonder what McCain thinks of that?