A reader asks a good question:

With regard to the government's bailout of Fannie Mae and Freddie Mac, I am curious to know where the trillions of dollars comes from. Do they arbitrarily manufacture an unlimited amount of paper money? Somewhere there must be a systyem of checks and balances. How does this work?

My answer:

The U.S. government will have to borrow another trillion dollars or so to finance all these bailouts. This will bring the total federal debt to around $11 trillion before too long. The only checks and balances come from the international economy. As long as people keep lending money to the United States, Congress will probably keep on borrowing it. The endgame would come when international lenders rebel, the dollar plunges, interest rates skyrocket and the United States becomes a second- or third-class debtor in the class of Argentina or Mexico. Nobody suggests we're near that stage, but with every trillion we borrow we're getting closer.