"However, in my view, the situation is far worse this time since the US financial system is extraordinarily stretched and stressed. Last time we only had the minor bankruptcies of Franklin National Bank and Continental Bank to contend with. Then there were no derivatives. This time they amount to more than 10 times world GDP and a greater multiple of bank capital. Within that total the most toxic ones are those unlisted, opaque, over the counter variety amounting to over $50 trillion, again multiples of US bank capital.
The revolution in market finance that began with the deregulation of the 1980s may be about to eat its young, as we have seen with the putative bailouts of Fannie Mae and Freddie Mac; if nationalization goes ahead the US visible national debt increases by $5 trillion and is effectively doubled. The US would no longer qualify to join the Euro!
The US budget deficit could be on the verge of exploding upwards. Including war costs it is already over 4 percent of GDP. The economic slowdown and President Obama’s plans for healthcare, whist noble and justifiable, even after tax increases, could send the deficit north of $1 trillion or 7 percent of GDP by 2010."