deadwood

Fannie/Freddie Bailout 'Disastrous Fiasco'

Grace,
Can you comment on the likely affect on the dollar, mid to long term. It seems to me that the government felt it had to bailout the GSEs for two reasons. First there is the calming the financial markets/too big to fail argument. Then there are all the other central banks, mostly Asian, holding paper from the GSEs that they have been assuming was gov. backed. If we defaulted they would have been a lot less eager to continue buying bonds to finance our overconsuming/undersav... habits. If assuming responsibility for the GSEs weakens the dollar, won't the bond market at some point start demanding a higher return to make up for being repaid in a devaluing currency?

A Closer Look at the Treasury's GSE Preferred Stock Purchase Plan

Sorry about the above.
Here's my question: We're bailing out the GSE's to protect the bondholders, primarily but not exclusively Asian banks. And we're doing this, I assume, because we need to be able to continue borrowing money from the Asians and if we let the GSEs fail, then our borrowing costs will rise—a lot. But by taking the debt of the GSEs onto the government's balance sheet, isn't it almost certain, at least in the long term, to weaken the dollar? The Asians must see this and understand that we will repay the money we have borrowed with weakened currency. As a result they will demand a higher return. Isn't this just trading one problem for the same problem in a different form? In other words, borrowing money is going to get more expensive any way you slice it.