Actions have consequences.  The chickens of the Obama Administration’s treatment of Chrysler creditors are coming home to roost:

Weak demand at a Treasury bond auction touched off worries in the stock market Thursday about the government’s ability to raise funds to fight the recession.

The government had to pay greater interest than expected in a sale of 30-year Treasurys. That is worrisome to traders because it could signal that it will become harder for Washington to finance its ambitious economic recovery plans. The higher interest rates also could push up costs for borrowing in areas like mortgages.

China, which has been the major purchaser of US debt, is getting twitchy about this style of financial governance.  The strong arm of no law:

It isn’t just unionized companies that could suffer from the Obama Administration’s cavalier attitude toward the rights of bondholders. The Treasury Department has to sell several trillion dollars worth of bonds to fund the President’s massive spending.

“Will the White House treat Treasury bondholders better than they’ve treated Chrysler bondholders?” asked University of Tennessee law professor Glenn Reynolds.

The Chinese government, the largest foreign purchaser of Treasury securities, evidently doesn’t think so. Treasury data for January and February indicate the Chinese have cut back substantially on their purchase of bonds. If those bonds go unsold, it isn’t only Chrysler and General Motors that face bankruptcy.

Other consequences down the road:

Hot AirOne of two things will have to occur to resolve the situation.  Either the federal government will have to massively cut its spending in order to service all that debt at the higher interest rates now demanded, or it will have to pass massive new taxes in order to generate enough revenue to accomplish it.  Which do you think Obama is likely to try?

No contest.

The FoundryHealing financial markets and a stabilizing economy generally translate into higher interest rates for long-term, high-quality bonds like 30-year Treasuries. The effect of the projected massive government borrowing, however, is to drive interest rates as much as a full percentage point higher yet. This will mean higher interest rates for consumer loans, mortgage loans, business loans, etc. Instead of a 6.5 percent mortgage rate, home buyers will face a 7.5 percent rate. The debt-based Obama economic stimulus plan is about to become a major drag on the recovery, just as expected.

Not to mention the higher interest rates states and local governments will have to pay for their borrowing and the resultant pressure on their budgets.

One of Obama’s stated goals in fixing the financial mess was to loosen up the flow of credit.  His call to institute price controls on credit card companies won’t help with that.  Price controls always end up restricting the product they’re imposed on.  Consumer credit is already dropping at record levels.

This is a mess the President is making worse by the day.  Oh, and if you’re waiting for a settlement check from Chrysler under lemon laws, don’t hold your breath.

Chrysler advises customers with pending lemon law complaints to file a proof of claim form with the Bankruptcy Court and join the ranks of the automaker’s unsecured creditors.

“In that case, you’ll be lucky to get pennies on the dollar,” [Atlanta attorney Alex] Simanovsky said.

You may, however, get a call from Mad Barack Beyond The Capitol Dome’s attack dogs.

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