The point of maximum pessimism is rapidly approaching this week for global investors as another bomb shell hit credit and equity markets.

Credit spreads surged again yesterday with the entire gamut of risk based and conservative investment-grade securities declining in value. Even high-grade corporate bonds outside of the financial sector, many of whom don’t need financing, continue to post big declines. And a significant New York based money market fund saw its NAV fall below the $1 level as it struggles with recent losses tied to Lehman Brothers Holdings.

LIBOR, or overnight dollar lending rates overseas, also soared last night and now remain well over 100 basis points on 90-day money. Overnight LIBOR has doubled to about 6% this morning as the credit crisis heads into overdrive and bankers and investors alike balk at interbank lending amid a severe credit freeze since Monday. No one wants to lend.

We are now in the late innings of this 13-month credit squeeze. The United States is doing everything in its power to save the financial system at this point, including opening the spigots wide open to bail-out banks, investment banks and, now, insurance companies. The Fed and Treasury continue to assume distressed assets from weak or failed institutions in return for a bail-out. The latest salvo was fired last night to save AIG as the Feds pumped the insurance giant with an $85 billion bridge loan to avoid failure. Like Fannie and Freddie, AIG is also too big to fail.

In the span of just four weeks the ongoing write-downs tied to credit losses have skyrocketed from $530 billion on August 15 to roughly $815 billion dollars now following Fannie Mae, Freddie Mac and AIG bail-outs. Before this is over, several other banks might join the fray, including some in Europe, which remains several months behind America’s credit and growth cycle.

Overseas, Russian equity markets collapsed 11% alone on Tuesday and are now down more than 50% this year as investors dump Russian stocks and the rouble. Plunging commodities prices have also exacerbated the crash in Moscow.

The good news for Russia, unlike the 1998 debt and currency collapse, is that she’s armed with $578 billion dollars’ worth of foreign-exchange reserves. That should help calm down local debt markets and help finance bridge loans to Russian banks that can’t secure revolving credit.

Meanwhile, one has to wonder just how much money the Feds can print in Washington to continue this massive rescue operation. At some point, it’s inevitable, taxpayers will have to fund this mess with what former Fed Chairman Paul Volcker billed as RTC II or Resolution Trust Corporation II. The government and money-center banks need to act fast to create a melting pot for all these bad loans in order to finally satiate market fears of a major systemic collapse in credit values.

The cost of this bail-out, which continues to grow by the day, will ultimately be hugely inflationary. For now, however, the markets are obsessed with deflation, an environment of rapidly declining asset prices and busted credits. The markets want proof the Feds can arrest this bout of falling prices. Let’s hope the point of maximum pessimism is almost here.