What gives?

After the mini-crash two weeks ago, we expected some hot action in the financial markets.

Instead, investors - who had been shaken out of their torpor by plunging stock prices worldwide - hit the snooze button again, rolled over, and went back into dreamland.

And why not? The news at the end of the week was soothing enough. Employment was up. Payrolls were up. A report from the Feds said that the trade deficit was supposed to have narrowed in January.

The Dow lifted slightly. Gold held over $650. The dollar stayed about where it was and where it has been for a long, long time - at $1.31 per euro.

And so another week ticked by...the National Debt crowded up against the $9 trillion mark...and approximately another $2 billion of U.S. assets slipped into foreign hands.

As to the former number, we were tempted to put a capital T on the trillion but decided against it. It needs no additional emphasis. The biggest pile of money ever put together in the history of the planet is now owned by people who call themselves communists. It is just a little more than $1 trillion - most of it in the form of claims against U.S. assets (dollars). But the U.S. federal government owes nine times that amount, about half to the public...of which more than half the owners are foreigners.

The interest on the part in public hands alone comes to $240 billion per year - or 11% of tax receipts. It is expected to double in the next 10 years...in 33 years it would take 100% of the entire federal budget. Obviously, that can’t happen. The U.S. government would be out of business.

Instead, something’s gotta give.

But even though something’s gotta give, it doesn’t mean that something’s gotta give right now...and it doesn’t mean that the majority of investors will not act like nothing’s ever gotta give...right up to moment when all Hell breaks loose.

Take the U.S. mortgage market...please. Something had to give there too, but that didn’t prevent a lot of very smart people from lending money right up to the moment when they heard the subprime bumpers crunching up against the foreclosure concrete.

And even then...the experts rushed to tell us that the damage would be minor. We have our seat belts, our air bags, they said - go back to sleep.

Less than two weeks ago, Scott Coren, an analyst with Bear Stearns, wrote clients that New Century Financial was not a bad buy at $15, since the lowest it could go was about $10 in “a rescue-sale scenario.”

But what’s this? The stock traded last week down to $3.21. When something finally did give at New Century, where were the rescuers?

The entire U.S. mortgage market is worth $6.5 trillion - more than the U.S. Treasury market. Something seems to be giving in spades, but where are the rescuers?

“Already, more than two dozen mortgage lenders have failed or closed their doors,” reports Gretchen Morgenson in the International Herald Tribune, “and shares of big companies in the mortgage industry have declined significantly. Delinquencies on loans made to less creditworthy borrowers
- known as subprime mortgages - recently reached 12.6%. Some banks have reported rising problems among borrowers were where deemed more creditworthy as well.”

About a third of all mortgages written last year were ‘subprime’ - a share that has tripled in the last three years.

When you make so many loans to so many people who can’t pay you back, something’s gotta give sooner or later. Now is as good a time as any.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.