Gonna Need a Bigger Boat
By THOMAS L. FRIEDMAN
To fight a global financial panic like this, you have to go
at it with overwhelming force -- an overwhelming stimulus
that gets people shopping again.

Full Story:
http://www.nytimes.com/2008/11/16/opinion/...amp;tntemail1=y

US Market

• Another Look at 3Q 2008 GDP by Steven Hansen
• Cramer's Picks - Is GM Lehman's Twin? (11/14/08) by SA Editor Miriam Metzinger
• The Bailout Plan: Did Bernanke Panic? by John M. Mason
• Bailouts Don't Solve Underlying Problem by Robert Nabloid
• ECRI: Economy Falling at Fastest Pace in 60 Years by Steven Hansen
• Too Many Unresolved Systemic Risks Plague the Market by J Clinton Hill
• The Humpty Dumpty Economy by Peter Schiff
• Miserable October Retail Sales: Eye on Oil, Autos and Housing by Kofi Bofah
• Stop the Bail-Outs, I Want to Get Off by Tim Price
• Sentiment Overview: Still Too Many Optimists by Babak
• Meltdown: State and Local Governments Falling Short by Michael Panzner

The Great Depression of the 21st Century: Collapse of the Real Economy- by Michel Chossudovsky - 2008-11-15

Public Lecture: The Global Financial Crisis, with Michel ChossudovskyMontreal, November 27 - 2008-11-26

Former Goldman Sachs chairman: Slump worse than Great Depression - 2008-11-15

Financial Crisis: International Trade In Jeopardy - 2008-11-15

Financial Crisis Triggers Disruption in International Shipping - 2008-11-15

America’s economic crisis is beyond the reach of traditional solutions- by Paul Craig Roberts - 2008-11-14

Letters of Credit and The Disruption of International Trade: Systemic Risk, Contagion and Trade Finance Back to the Bad Old Days - 2008-11-15

A start for a new economic order
Christian Science Monitor - Boston,MA,USA
An overhaul of the world economic order can't be done in a day. Still, a one-day summit of 20 leading economies Saturday showed big ambitions to correct the ...


Historic shift in economic power
The Australian - Sydney,Australia
... that he had been convinced the situation was so bad that failure to act would cause an economic collapse worse than the Great Depression of the 1930s. ...


Depression recollections
Chicago Tribune - United States
She was only 5 years old in 1929, when the nation fell into the long economic cataclysm that came to be known as the Great Depression. ...



Boston Globe Depression 2009: What would it look like?
Boston Globe - United States
Today, however, whatever a depression would look like, that's not it. We are separated from the 1930s by decades of profound economic, technological, ...
Econ summit vows action
Grand Forks Herald - Grand Forks,ND,USA
With much of the world sinking into recession and fearing depression, the leaders said in a statement they have a "shared belief" that growth results from ...


World leaders pledge cooperation to solve economic crisis
Austin American-Statesman - Austin,TX,USA
With much of the world sinking into recession, and fearing a worse economic depression, the leaders declared in a joint statement that they have a "shared ...


Washington summit targets at crisis
China Daily - China
World leaders facing the difficult job of walking out of a grave economic crisis at an earlier date, agreed on Saturday in Washington DC to work more ...


Who Gets Invited To The G-20 Party?
NPR - USA
Bush said the countries were brought together out of concern that they faced "a depression greater than the Great Depression." Bush said details of reform ...


Bush says summit leaders agree to cooperate better
The Associated Press
... economic summit, said Saturday that decisive action had been required in recent weeks to save the United States from possibly falling into "a depression ...


G20 leaders reach deal
Toronto Star - Ontario, Canada
... deeper than the Great Depression. He also said the leaders found consensus on trade barriers, agreeing that they would resist the urge to build economic ...

Business / World Business: Japan's Economy, World's Second Largest, Is in
Recession
By MARTIN FACKLER
Japan's economy has been hurt by weak export growth and
steep cuts in corporate spending amid the worsening global
slowdown.

Full Story:
http://www.nytimes.com/2008/11/17/business...amp;tntemail1=y

Sports / Baseball: Recession Is a Relative Term in Baseball
By WILLIAM C. RHODEN
With much of the nation reeling, with banks failing,
workers being laid off and homes foreclosing, how do sports
owners continue to pay players by the millions?

Full Story:
http://www.nytimes.com/2008/11/17/sports/b...amp;tntemail1=y

G20 Nations Agree More Concerted Efforts, Regulatory Coordination But No Coordinated Fiscal Stimulus

• Following up on the previous week’s meeting of finance officials in Sao Paolo, G20 leaders (including 10 major emerging economies+ G8, Australia and the EU) meeting in Washington agreed to continue to take steps to stabilize the global financial system and improve the international regulatory framework. Action plan includes regulatory policy changes to be implemented by March 31, 2009 and G20 agrees to meet again before April 30, 2009
• G20 statement: Against this background of deteriorating economic conditions worldwide, ... a broader policy response is needed, based on closer macroeconomic cooperation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries. --> Further policy steps to include Monetary policy support as appropriate for domestic conditions, fiscal measures to stimulate domestic demand, while maintaining a policy framework conducive to fiscal sustainability. Increased transparency of financial sector, regulation of rating agencies, avoiding pro-cyclical regulation, increased information sharing between national authorities, expanding the FSF to include emerging economies and ensuring that IMF and other multilateral institutions to have sufficient resources to support emerging economies capital needs

Click Here For Full Analysis

• Labor Markets Face Slow Recovery by Mark Thoma
• NABE Expects Low 2009 Growth by Steven Hansen
• Why Paulson and Bernanke's Plans Don't Work by James Wood
• Warning: New Lows Ahead by Mark Caffee
• More Doom Ahead by Adam Goldberg
• Sinking Deeper into Recession While the Economic Commentariat Flounders by Gerard Jackson
• Deflation Now; Inflation's Coming by Louis Paquette
• Will Obama's Economic Policies Drag the U.S. Down? by Gerard Jackson
• Obama's First Move on the Economy by Peter Morici
• Fed Funds Rate: Turning Japanese, I Really Think So by Tim Iacono
• Paulson's Commercial Paper Quandary by Kirk Shinkle
• Can a Global Economy Be Managed One Nation at a Time? by Fred Wilson
• Peak Oil, Cars, and Depressions by Jim Kingsdale
• Value Portfolio Produces a Horrendous Report Card by Mark Krieger
• World Currencies Play 'Meet Me at the Bottom' by Andy Sutton
• Why the U.S. Automakers Should Get a Bail-Out by John Whitehall
• Deflation? What Deflation? by Big Jake
• http://links.seekingalpha.com/links/32683/12/146897/419

Economy

• Sinking Deeper into Recession While the Economic Commentariat Flounders by Gerard Jackson
• Deflation Now; Inflation's Coming by Louis Paquette
• Worst Government Report on Retail Spending Ever by Trader Mark
• Freddie Mac First to the Trough by Trader Mark

G-20 Plan for Tighter Financial Rules Signals Smaller Profits After Crisis Leaders of the world’s biggest developed and emerging nations put banks and investors on notice they will need to keep more capital and reveal more about their holdings, signaling the industry may emerge from the current crisis with less potential for profit. FDIC May Alter $1.4 Trillion Debt-Insurance Program After Banks Complain The Federal Deposit Insurance Corp. may revise a $1.4 trillion debt-insurance program to address complaints that it would spur an exodus from the $250 billion market for overnight loans between banks.

New York Manufacturing Index Falls to Record Low as Orders, Sales Plummet Manufacturing in New York contracted in November at the fastest pace on record as orders and sales plunged.

Obama-Pelosi Billions May Fail to Revive Growth as Slump Defeats Stimulus President-elect Barack Obama and House Speaker Nancy Pelosi may throw as much as half a trillion dollars worth of stimulus at the economy -- and have little or no growth to show for it.

U.S. Recession to Extend Into 2009 as Spending Falls, Economist Group Says The U.S. has entered a recession that will persist into next year, and economies around the world will follow suit, according to a survey of business economists.

Bloomberg U.S. Mortgage Delinquency, Foreclosure Rates: Table of the Day The following table shows residential mortgage delinquency rates for U.S. loans as reported by the Bloomberg non-agency database comprised of over 45 million securitized loans.

The Great Depression of the 21st Century: Collapse of the Real Economy

By Michel Chossudovsky

URL of this article: www.globalresearch.ca/index.php?context=va&aid=10977

Global Research, November 15, 2008

The financial crisis is deepening, with the risk of seriously disrupting the system of international payments.

This crisis is far more serious than the Great Depression. All major sectors of the global economy are affected. Recent reports suggest that the system of Letters of Credit as well as international shipping, which constitute the lifeline of the international trading system, are potentially in jeopardy.

The proposed bank "bailout" under the so-called Troubled Asset Relief Program (TARP) is not a "solution" to the crisis but the "cause" of further collapse.

The "bailout" contributes to a further process of destabilization of the financial architecture. It transfers large amounts of public money, at taxpayers expense, into the hands of private financiers. It leads to a spiraling public debt and an unprecedented centralization of banking power. Moreover, the bailout money is used by the financial giants to secure corporate acquisitions both in the financial sector and the real economy.

In turn, this unprecedented concentration of financial power spearheads entire sectors of industry and the services economy into bankruptcy, leading to the layoff of tens of thousands of workers.

The upper spheres of Wall Street overshadow the real economy. The accumulation of large amounts of money wealth by a handful of Wall Street conglomerates and their associated hedge funds is reinvested in the acquisition of real assets.

Paper wealth is transformed into the ownership and control of real productive assets, including industry, services, natural resources, infrastructure, etc.

Collapse of Consumer Demand

The real economy is in crisis. The resulting increase in unemployment is conducive to a dramatic decline in consumer spending which in turn backlashes on the levels of production of goods and services.

Exacerbated by neoliberal macro-economic policy, this downward spiral is cumulative, ultimately leading to an oversupply of commodities.

Business enterprises cannot sell their products, because workers have been laid off. Consumers, namely working people, have been deprived of the purchasing power required to fuel economic growth. With their meager earnings, they cannot afford to acquire the goods produced.

Overproduction Triggers a String of Bankruptcies

Inventories of unsold goods pile up. Eventually, production collapses; the supply of commodities declines through the closing down of production facilities, including manufacturing assembly plants.

In the process of plant closure, more workers become unemployed. Thousands of bankrupt firms are driven off the economic landscape, leading to a slump in production.

Mass poverty and a Worldwide decline in living standards is the result of low wages and mass unemployment. It is the outcome of a preexisting global cheap labor economy, largely characterized by low wage assembly plants in Third World countries.

The current crisis extends the geographic contours of the cheap labor economy, leading to the impoverishment of large sectors of the population in the so-called developed countries (including the middle classes).

In the US, Canada and Western Europe, the entire industrial sector is potentially in jeopardy.

We are dealing with a long-term process of economic and financial restructuring. In its earlier phase, starting in the 1980s during the Reagan Thatcher era, local and regional level enterprises, family farms and small businesses were displaced and destroyed. In turn, the merger and acquisition boom of the 1990s led to the concurrent consolidation of large corporate entities both in the real economy as well as in banking and financial services.

In recent developments, however, the concentration of bank power has been at the expense of big business.

What is distinct in this particular phase of the crisis, is the ability of the financial giants (through their overriding control over credit) not only to create havoc in the production of goods and services, but also to undermine and destroy large corporate entities of the real economy.

Bankruptcies are occurring in all major sectors of activity: Manufacturing, telecoms, consumer retail outlets, shopping malls, airlines, hotels and tourism, not to mention real estate and the construction industry, victims of the subprime mortgage meltdown.

General Motors has confirmed that "it could run out of cash within a few months, which could prompt one of the biggest bankruptcy filings in U.S. history". (USNews.com, November 11, 2008)) In turn this would backlash on a string of related industries. Estimates of job losses in the US auto industry range from 30,000 to as much as 100,000.(Ibid). source:

URL of this article: www.globalresearch.ca/index.php?context=va&aid=10977

Economic Outlook: Worst Recession Since 1930s Is Possible
Wall Street Journal Blogs - New York,NY,USA
“We’re talking about something which is very severe and arguably could be the worst downturn since the Great Depression. … We simply can’t be constrained in ...


Paulson, Bernanke defend financial market rescue efforts
MarketWatch - USA
The Bush/Bernanke/Paulson downturn/recession/depression is just starting to kick into high gear now. Yes, now we will have at least 3 years of decimation. ...



Infrastructure Spending to Nowhere
National Review Online - New York,NY,USA
... for all of two weeks — had actually accomplished something, and (2) if Franklin Roosevelt’s economic program had really ended the Great Depression. ...

Roubini Says U.S. Recession to Be Worst in 50 Years: Video

• Transcript of Talk at AEI seminar on the "The Deflating Mortgage and Housing Bubble, Part IV: Where Is the Bottom?" by Nouriel Roubini
  2008-11-18 12:09:43
• 20 Reasons Why the U.S. Consumer is Capitulating, thus Triggering the Worst U.S. Recession in Decades by Nouriel Roubini
  2008-11-14 10:52:11

Whitehead sees slump worse than Depression
http://www.reuters.com/article/Finance08/i...E4AB7HT20081112


By Joseph A. Giannone

NEW YORK (Reuters) - The economy faces a slump deeper than the Great Depression and a growing deficit threatens the credit of the United States itself, former Goldman Sachs chairman John Whitehead, said at the Reuters Global Finance Summit on Wednesday.

Whitehead, 86, said the prospect of worsening consumer credit woes combined with an overtaxed federal government make him fear that the current slump is far from over.

"I think it would be worse than the depression," Whitehead said. "We're talking about reducing the credit of the United States of America, which is the backbone of the economic system." Whitehead encountered plenty of crises during his 38 years at the investment banking firm and was a young boy during the 1930s.

Whitehead warned the country's financial strength is at risk due to the sweeping demand for tax relief and a long list of major government spending plans.

"I see nothing but large increases in the deficit, all of which are serving to decrease the credit standing of America," said Whitehead, who served as chairman of the Lower Manhattan Development Corp after the World Trade Center was destroyed during the September 11, 2001 attacks.

Whitehead, who helped make Goldman a top-tier Wall Street firm and led its international expansion, left in 1984 to become a deputy secretary of state under Ronald Reagan.

He warned that the country's record deficit is poised to balloon as the public calls on government for more support.

"Before I go to sleep at night, I wonder if tomorrow is the day Moody's and S&P will announce a downgrade of U.S. government bonds," he said. "Eventually U.S. government bonds would no longer be the triple-A credit that they've always been."

There are at least ten "trillion dollar problems," facing the United States, he said, including social security, expanding health insurance, rebuilding infrastructure and increased spending on green energy. At the same time, the public does not want to pay for it.

"The public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs -- all very costly and all done by the government," he said.

Large deficits can weaken the country's credit and increase its borrowing costs, which already constitute a significant part of funding to cover expenses. Whitehead said it could take "several years" for the current problems to be resolved.

Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes.

"I just want to get people thinking about this, and to realize this is a road to disaster," said Whitehead. "I've always been a positive person and optimistic, but I don't see a solution here."

(For summit blog: summitnotebook.reuters.com/)

(For more on the Reuters Global Finance Summit, see [ID:nN10403323])

(Editing by Jeffrey Benkoe)

http://www.nytimes.com/2008/11/20/business...markets.html?hp

November 20, 2008
Dow Drops Below 8,000 in Another Stock Sell-off
By JACK HEALY

Shares on Wall Street closed at their lowest levels in five years on Wednesday as hope dimmed in Washington for an emergency bailout of the auto industry.

The late-day sell-off came in frenzy amid growing fears of deflation.

The Dow Jones settled below 8,000 for the first time since 2003, dropping 427.47 points or 5 percent to 7,990. The broader Standard & Poor’s 500-stock index was 6.1 percent lower. The technology-heavy Nasdaq composite index was down 6.5 percent.

“It’s painful,” said Howard Silverblatt, senior index analyst at Standard & Poor’s. “A lot of people have pulled a lot of cash out. They’re sitting on the side. It’s all I hear all day: ‘Where can I hide?’ ”

All corners of the market were down, but the financial, transportation and consumer sectors took the heaviest blows. Financial stocks were down an average of 9 percent over the day, and the banking giant Citigroup dropped 22 percent.

Auto shares fell as the leaders of the three American automakers reprised their appearance on Capitol Hill to discuss an emergency bailout and the threat of bankruptcy. General Motors was down 10 percent, to $2.78 a share, and the Ford Motor Company was down 24 percent, to $1.27.

By late Wednesday, it seemed clear the automakers would leave Washington without the $25 billion in federal aid the companies contend is critical to their long-term survival.

Crude oil prices settled at a 22-month low at $53.62 a barrel, and energy stocks followed them lower. Exxon Mobil, Chevron, Conoco Phillips and other major oil companies were all down.

Wednesday’s losses followed news that consumer prices dropped 1 percent in October, a record one-month decline, according to the Labor Department. Energy prices, which tumbled 8.6 percent over the month, led the declines.

Even removing turbulent energy and food costs, consumer prices fell 0.1 percent from September to October, though they are still 2.2 percent higher for the year. Economists said the drop in so-called “core prices” offered a warning that the United States could fall into a cycle of deflation as the economy weakens.

Meanwhile, housing starts in October fell 4.5 percent to a seasonally adjusted 791,000 from the prior month, the government reported on Wednesday. For the year, housing starts were down 38 percent and building permits were 40 percent lower, reflecting how the housing industry has slammed to a halt amid tumbling home values, slumping sales and tighter credit markets.

“This report is a shocker,” Patrick Newport, United States economist at Global Insight, wrote in a note. “When will starts turn around? If financial conditions improve, most likely about the middle of next year. But between now and then, starts are almost certain to drop another 20 percent.”

But Lawrence Yun, the chief economist of the National Association of Realtors, said the numbers, while painful for the construction industry, were a sign the housing market was trying to rid itself of a glut of unsold homes.

“The last thing we want is to add onto more inventory,” Mr. Yun said. “Right now builders are trying to pull back and cut production. I see that as a move in the right direction.”

Markets in Europe and Asia were mostly down on Wednesday. Indexes in Japan and Hong Kong finished less than 1 percent lower while China’s Shanghai index bounced 6 percent. Britain’s FTSE 100 index and the DAX in Frankfurt each closed nearly 5 percent lower while France’s CAC index gave up 4 percent.

'The Economy Fell off the Cliff'
Time for a Bank Holiday
Existing home sales tumble
Citigroup’s ‘Capital’ Was All Casing, No Meat
That Money Isn’t Leaving the Vault
What if a Slowdown Is a Never-Ending Story?
Citigroup Saw No Red Flags Even as It Made Bolder Bets
Stock markets may trade sideways for "15 years"
California jobless rate jumps to 8.2 percent
Foreclosures boost homes sales
Bernanke May Find Deflation Is Back as Fed Concern
Falling Prices Raise a New Fear: Deflation
Crisis Hits Values of Commercial Mortgages
California unemployment jumps to 8.2%, third-highest in the U.S.
Jobless claims surge to a 16-year high
U.S. Leading Economic Indicators Fell 0.8% in October
Goldman, GE, GM Invite Us to Play a Rigged Game

Bush Labor Department misled Congress in effort to privatize jobs: President George W. Bush's Labor Department misled Congress in an effort to prove outsourcing jobs to private companies was more efficient than assigning the jobs to government employees, according to a Government Accountability Office report released Monday.

German Weimar Republic in the early 1920s and the U.S. - Troubling similarities

US Fed announces $800bn "stimulus": About $600bn will be used to buy up mortgage-backed securities while $200bn is being targeted at unfreezing the consumer credit market.

Data shows sharper US contraction: The US Commerce Department said the downward revision was due to the biggest fall in US consumer spending in 28 years

Home prices in record plunge: - Prices of single-family homes plunged a record 17.4 percent in September from a year earlier, according to a key S&P index released on Tuesday.

Better Than the Depression? Don't Kid Yourselves by Devin Hobbes

The Failure of TARP and the Government's Solution by Daniel Miller

FDIC Graphs Show the Extent of the Financial Crisis by Anthony M. Freed

• America's Economy: Leaving on a Jet Plane by Enzio von Pfeil

Issuing Debt for as Long as Our Republic Will Last by David Merkel

The Broken Treasury Market by Felix Salmon

Deflation Is Worse Than the CPI Indicates by Mark Sunshine

THE GLOBAL SHAME OF CENTRAL BANKS

On October 29, the US Federal Reserve cut by 50 basis points the official Fed Funds rate down to 1.0% flat. Do not expect the US Fed to be done cutting rates. One week later, the entire globe of beleaguered central banks also cut their official interest rates in a parade of ignominy. They coordinated rate cuts on October 8, and again followed the US Fed in early November. The important Euro CB cut by 50 basis points to the 3.25% level, surely in reluctant fashion given their firm defiant stance. The most desperate CBs are clearly England and Switzerland among the majors, and Australia and New Zealand in the second tier. The Bank of England (BOE) cut by 150 basis points unexpectedly, now at a 3.0% low level.

The Swiss National Bank cut by 50 bpts with the pack, but on November 20 surprised all by cutting another full 100 bpts down to the ultra-low 0.5% level. The Reserve Bank of Australia cut by 100 bpts in October and plans to cut again this month. The Reserve Bank of New Zealand cut by 100 bpts in October and also plans further cuts. The Bank of Canada cut by 25 bpts in October and plans another 25 bpt cut in December. The Riksbank of Sweden cut by 50 bpts to 3.75% in October and plans another 25 bpt cut in December or soon afterwards. With global monetary inflation raging, and official interest rates converging to zero, the global central bankers must hang their heads in shame. THIS IS THE MOST VISIBLE, OBVIOUS, PREVALENT SIGNAL OF THEIR FAILURE.

The contained messages are four-fold:

• ABSOLUTE CONTAGION: the global economy is suffering from broadly felt toxic shock due to US bonds, a process that has a few more quarters of severe crisis pathogenesis

• POLICY EXTORTION: the major and secondary CB heads want to cut so that the US$ does not fall, coerced with a monetary gun at their heads

• INFLATION EXPLOSION: global monetary growth has gone ballistic, no longer a priority to control, with all talk about limiting price inflation relegated to mumbling in the corner

• ENDLESS RESCUES & BAILOUTS: the government sponsored bailouts are nowhere near finished, sure to be an endless parade of patchwork and stimulus with eventual climax of mortgage aid.

Just think of it. The USGovt, after a coup d'etat pulled off by Wall Street and fraudulent climax diversion of TARP funds, has yet to address the mortgage problem at all. Mortgage aid in meaningful and necessary terms is actively avoided, since it must come with a price tag up to $2000 billion in the United States alone. The nationalization of the US banking, if not financial system, is highly likely to be followed by an eventual virtual nationalization of the entire mortgage system . Such a decision and desperate socialist action will be the death knell for the US Dollar, if it survives to the point when such a program is enacted.

The unbridled monetary inflation is a powerful bull market signal for gold, once asset prices stabilize. Monetary explosion always pushes gold upward in price, but this time much money is directed into a multi-channeled black hole . Today, yet another program was announced, finally to enable more lending capital to banks. They have been starved to date, drained in order to supply the corrupt Wall Street conmen in charge. The coordinated interest rate cuts reveal the strong impact of Competing Currency Devaluation. Foreigners wish to avoid further aggravation to their economies from even lower domestic currency exchange rates. They inflict higher prices upon their economies. Later, foreign governments will order their reserves and sovereign wealth funds to dump USTBonds in order to bolster their domestic currencies, the great counter-attack.

The US Economy has a worse problem to fix by an order of magnitude. My view is that the powerful US ailments are not fixable, since the financial engineering is too deeply rooted and the manufacturing industrial base has been removed in several stages over a 25-year period. Besides, the credit derivatives loom like a series of hidden bombs whose fuses intersect in the dark.

THE FRANCHISE OF CENTRAL BANKING HAS FAILED, AND GRAND RATE CUTS CONFIRM THIS NOTION EMPHATICALLY!!! THE COLLECTION OF CONCLUSIONS ADDS UP TO ONE POWERFUL FORECAST: GOLD & SILVER PRICES WILL RISE 10-FOLD IN THE NEXT FEW YEARS. SOON THE CLUTCH WILL BE RELEASED AND THE 10000 RPMS ENGAGE THE ECONOMIC TRANSMISSION TO PRODUCE PRICE SKIDMARKS. Ignore for now the paper price heavy-handed influence, which in my view will suddenly disappear in a volcano of controversy and tumult! The US paper system has falsified the entire global pricing structure. Instead of price discovery, we have been subjected to price controls and tyranny. Next comes the counter-attack.

Lost faith in US Fed has finally come. Chairman Bernanke has learned the hard way that usage of the printing press is not the boasted solution. He is sending good money after bad, redeeming criminal fraud, endorsing checks for a broken system, and creating numerous delivery channels into a vast black hole. The US Federal Reserve has accomplished a bizarre feat. They have made short-term lending virtually free, but offer a yield over 3% on long-term bonds. So US banks are deeply engaged in a queer carry trade. US banks borrow short and lend to the USGovt long, and thus exploit the steep USTreasury yield curve. The US banks are trying to liquefy from this perverse mechanism, using incredibly large volumes of money. In the process, the US Fed balance sheet is testing whether it can grow a tree to the sky. The USGovt has contributed to the ugly mountain of rancid paper with bad precedent after bad precedent, from poorly written deals. No private investor in right mind would step forward to help an ailing industrial or financial firm on the absurd blockheaded terms established by the USGovt. A record setting 25% of high-powered money, as in bank assets, that the US Fed has provided, actually sit idle as excess reserves. Hence, money velocity has sharply dropped , typical of a recession. Failure has many symptoms. The US Economy aggregates are falling off a cliff in unison.

Europe has entered a recession, but the US has entered disintegration, while England is close behind with a galloping leap off the Dover Cliffs. Kenneth Clark is a highly respected former conservative Chancellor of the Exchequer (finance minister) from 1993 to 1997 in England. He delivered an urgent warning for a “catastrophic crisis [that will be] far worse than anything that has occurred in my lifetime” for Great Britain. Clarke even slammed Gordon Brown as having received undue credit for his role in attempting to shore up the global economy. He warned policymakers should beware of a “full-blown depression will have on public finances” for its effect.

A major error has been committed by both the US & UK. Neither nation has succeeded in passing on lower interest rates to home loans, and repayment plans are not happening in volume. The elite in both the US & UK are protecting their bankers, but killing the system in the process. Housing prices are careening downward, while job losses mount in large numbers, in both nations. The death of the Anglo Sphere is nigh, as status of debtor nations comes soon with all its penalties. A simple move to cut rates does nothing to address insolvency of both banks and households. This basic truism is totally lost on clownish inept US & UK economists and bankers. They both built an economy atop a housing bubble, blessed it, and encouraged the debt orgy process, only to see the entire system melt down. This was fully forecasted during the last two years by the Hat Trick Letter.

A VERY QUEER ANOMALY

We are working toward a nasty climax of historic proportions. Notice that the USTreasury Bill has an artificially high price, with staggering huge volume, which is backwards . This condition defies Mother Economic Nature. Notice that gold has an artificially low price on the paper contracts, with staggering huge demand for physical metal, which is also backwards. This condition defies Mother Economic Nature.

The USTreasurys, given the staggering high volume, should be valued lower. The gold bullion, with its staggering high demand, should be valued higher. Something must break, and break soon. Regard these two anomalies as temporary distress symptoms of ass-backward price mechanisms. The natural tendencies of man, full of human emotions like vengeance and retribution, will soon be unleashed to correct the PHONY HIGH USTBILL PRICE AND PHONY LOW GOLD PRICE. All kinds of key evidence points to a COMEX default in December, discussed in the November Gold & Currency Report. The keys are in the Open Interest, which for gold is collapsing. But the December OI is holding up at relatively high levels. The interpretation from Mr Market, who is a distant cousin of Mother Economic Nature, is “The paper gold market is flawed, and people want no part of it. What physical gold becomes available is being grabbed immediately.”

Further hints are offered by the Chinese, who announced a stimulus plan worth over $500 billion. They will use their USTBonds before they are trashed. The next phase is feeding off the USTreasury much like a dead elephant. However, the signature event must come first. THE COMEX GOLD MUST BE VANQUISHED. This is the Achilles Heel to the US Dollar

ATTACK OF COMEX GOLD & SILVER Powerful foreign entities are preparing a massive major assault on the US financial corruption, at key spots. All signs seem to point to the gold futures contracts traded at the COMEX and NYMEX, whose prices are routinely suppressed by a high volume of uneconomic short contracts by two to four banks. The COMEX is a division of the New York Mercantile Exchange. A highly leveraged sequence is soon to be unleashed, one that should bring back thoughts of asymmetric attack. Think small cost of a weapon, heavy damage to costly equipment. Something big comes to the gold market, with big angry players! If successful, severe damage will be done to the US Dollar Their goal is to kill the COMEX gold market, the key location for gold price suppression. Major Russian, Chinese, Arab, and European bankers and billionaires are angry beyond words. The giant portion of gold vaulted resides in Central Europe. A plan is in place. The key here and now is COMEX gold futures contracts, where many big players are demanding delivery for their December contracts. North American investment houses have also targeting them for delivery demands. With newly energized Russia & China building their gold treasures, with Arabs turning from distrusted Western paper and more toward gold & silver, look for the new players to offer support to the primary thrust attacks. If successful, it will be a defining moment in US financial history. The first delivery notice for the December gold contract is given on November 28.

Recall that Russians and Arabs each have severe damage done to the crude oil price and petro revenues. The futures contract games conducted by US price systems and Wall Street tactics used against hedge funds are largely responsible. Russians and Arabs are angry. Their financial markets are in turmoil, their economies are disrupted, their property markets are in disarray. Furthermore, Russians and Arabs own a large amount of acquired gold, whose value is also pushed down by corrupt US paper mechanisms.

The Persian Gulf lusts to put in place a gold trading center of world repute. A brutal powerful trap has been set, to be executed upon the paper engineers without mercy. If you have noticed the facial expression on some Wall Street heads, like Paulson, change in the last few weeks, this is one reason why. They have no shame in confiscation of Congressional funds. But they dread presiding over a failed pricing system for gold, and dread the prospect of being unmasked, not to mention bankrupted. Keep the focus on the JPMorgan garbage can, where the illegal futures contracts are stored, the very same contracts that are never marked to market on their balance sheet. A COMEX blowup reveals their grotesque distortion of market forces, underpinned by gold and USTreasurys. More details are provided in the November Hat Trick Letter report, like the movement by the Chinese and Iranians to vastly increase their gold reserves.

Veteran warhorse Max Keiser, has a video worth watching. See his video (CLICK HERE ). He discusses the upcoming COMEX default for the December gold futures contract. He believes that in its wake, the gold price will rise suddenly to $2000 per ounce, perhaps in a single day. The main impetus in his view for the breakdown is pressure exerted by Russia, in his view. He describes their motive. Russia is very angry over the oil price, down 60% from its peak, driven largely by liquidations from Wall Street targeting of hedge funds. Russia regards the paper game to be out of control. Russia has suffered from both reduced energy revenues from export sales, and notable currency decline in their ruble exchange rate. Financial markets, banks, and corporations have suffered in Russia as a result, prompting a severe reaction by Putin and Medvedev. These are not guys known to take ambushes and sucker punches well without a response.

AWAKENED GOLD PRICE

The US Dollar DX index has topped. Conversely, the gold price has bottomed. Each has experienced a clear vivid pronounced reversal off the extreme. Signs point to December as being a battleground month. The moving averages have begun to reverse, a more stable signal. A MACD crossover is near, which would give a billboard notice to technical traders. Beware that this is the phony paper gold price. Actual large physical gold transactions are conducted at prices in excess of $1000 per ounce. The undue influence of paper price discovery is soon to end. As the Gladiator said in the 1999 movie by the same name, to the phony emperor who usurped power, “The time will soon come to an end for you to honor yourself.” Expect severe discontinuity in the gold price in the next few months, maybe sooner. If Keiser and others are correct, and the assault on the COMEX gold succeeds to liberate its price, a gap up is assured, a big gap up, like a few hundred dollars per ounce. Now is the time to hold firm your gold and silver metal. Sell the children, but do not sell the precious metal.


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by Jim Willie CB
Editor of the “HAT TRICK LETTER”
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Re: Chairman's Corner - Wednesday, November 26, 2008
Title: Volcker issues dire warning on slump
Author: Jim Sinclair
Dear Friends,

As you may know, it was Chairman Paul Volcker who predicated the Hunt loan on my availability to advise on the liquidation of the Hunt brother's metal position.

I know him to be a brilliant realist.

In 1979, he had a totally different situation and the full backing of the Administration. This time his job is the absolute opposite of what it was in 1979-1980.

This time I know his advice will be friendly to gold and most certainly on the subject of the Federal Reserve Gold Certificate Ratio (FRGCR).

Gold was a major item used in the 30s for many reasons, one of which was an attempt to take the deflationary perspective out of the public mind.

1. His assignment is to fight DEFLATION.
2. Obama spoke profusely of differences of opinion in his economic communication today.
3. There is no chance Obama will listen to Volcker other than when it supports his Administration's goals and policies
4. After 7.1 trillion dumped into the economy, there is no chance anyone can avoid the consequences.
5. Don't be a fool and worry.
6. Worry only if you are not protected and insured against what is to come.

Volcker issues dire warning on slump

Paul Volcker, the former chairman of the US Federal Reserve, has warned that the economic slump has begun to metastasise after a shocking collapse in output over the past two months, threatening to overwhelm the incoming Obama administration as it struggles to restore confidence.

By Ambrose Evans-Pritchard
Last Updated: 10:39PM GMT 17 Nov 2008

"What this crisis reveals is a broken financial system like no other in my lifetime," he told a conference at Lombard Street Research in London.

"Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again. The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."

His comments come as the blizzard of dire data in the US continues to crush spirits. The Empire State index of manufacturing dropped to minus 24.6 in October, the lowest ever recorded. Paul Ashworth, US economist at Capital Economics, said business spending was now going into "meltdown", compounding the collapse in consumer spending that is already under way.

Mr Volcker, an adviser to President-Elect Barack Obama and a short-list candidate for Treasury Secretary, warned that it is already too late to avoid a severe downturn even if the credit markets stabilise over coming months. "I don't think anybody thinks we're going to get through this recession in a hurry," he said.

He advised Mr Obama to tread a fine line, embarking on bold action with a "compelling economic logic" rather than scattering fiscal stimulus or resorting to a wholesale bail-out of Detroit. "He can't just throw money at the auto industry."

Mr Volcker is a towering figure in the US, praised for taming the great inflation of the late 1970s with unpopular monetary rigour. He is no friend of Alan Greenspan, who replaced him at the Fed and presided over credit excess that pushed private debt to 300pc of GDP.

"There has been leveraging in the economy beyond imagination, and nobody was saying we need to do something," he said. "There are cycles in human nature and it is up to regulators to moderate these excesses. Alan was not a big regulator."

Even so, he said the arch-culprit was the bonus system that allowed bankers to draw forward "tremendous rewards" before the disastrous consequences of their actions became clear, as well as the new means of credit alchemy that let them slice and dice mortgage debt into packages that disguised risk.

more...

2008 – After the mortgage loan crisis, here comes the corporate debt crisis</h3> It is now the time of company profits to be directly and suddenly affected by the ongoing recession, as they are caught in the crossfire between insolvent consumers and banks in a state of shock. The effect will be particularly powerful in the US and the UK which are today at the hub of the process, but also in China where the degree of fragility of companies has no equivalent but the frantic speculation on financial markets and the archaism of the banking system. Excerpt GEAB N°21 (January 16, 2008)

'I.O.U.S.A.': Tackling the national debt
A former U.S. comptroller wants to scare America straight about its ballooning national debt. Al Gore put global warming into the family dinner conversation; now David Walker, former U.S. Comptroller and the star of "I.O.U.S.A.," a documentary about our ballooning national debt, says that if we don't face up to our fiscal problems, the U.S. could go broke. CNN Money

The Obama "Dream Team": Rubin-clones And Other Fakers

By Mike Whitney

November 27, 2008 "Information Clearinghouse" --- Things are getting crazier by the day. On Tuesday, Treasury Secretary Henry Paulson announced that the Fed would commit another $800 billion to fight the financial crisis which has spread to the broader economy and is causing sharp declines in consumer spending. The Fed plans to buy $600 billion of mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac and another $200 billion of Triple A bonds from non-bank financial companies that provide financing for consumers. There's just one little hitch, Fannie and Freddie are already owned by the government, so buying the bad paper is like moving the figures from one ledger to another. It's pointless. Except for the fact, that by shuffling the paperwork, Bernanke can drive down long-term interest rates and (hopefully) rekindle flagging home sales. It's quite a trick.

And with the other $200 billion he can kick-start the securitization market by purchasing bundles of student loans, credit cards and car loans. Investors have been boycotting the asset-backed securities (ABS) markets for months now which has choked off the flow credit to consumers. So the Fed is trying to unclog the plumbing by stepping in as the lender of last resort. Of course, if the Fed really wanted to get money to consumers there are much easier ways to do it, like cutting the payroll tax or mailing out stimulus checks or issuing tax rebates to couples making under $60,000 per year. But that's not what Bernanke wants to do. The real objective is to reignite securitization because that's the vehicle the investment banks and hedge funds use to increase profits through leveraged bets on odd-sounding derivatives. (CDO, MBS, CDS). But no one is buying dodgy securities anymore because no one knows their true value. Until that can be worked out, investors will stay away. That's why Bernanke and Paulson would be better off with a little less liquidity and a little more transparency. Price discovery for structured investments is critical. If investors know the market price, then they'll jump in. If not; it's no dice.

Bernanke and Paulson are trying to tackle the financial crisis from the wrong end. This isn't about liquidity or "access to credit", its about confidence. The public's trust has been betrayed a million times over. They've been tricked with WMD, bamboozled with phantom enemies, and cheated with bogus securities. All the surveys say the same thing; public confidence is at an all-time low. As a result, fear and pessimism are more widespread than any time in recent history. People no longer expect tomorrow to be better than today. In fact, they expect it to be worse, and for good reason. The country has broken loose from its moorings and is adrift. There's no accountability at any level of government anymore; it doesn't matter how big or heinous the crime, no one pays. The justice system is a sham. In fact, the D.O.J. is just a weapon for destroying political enemies; that's it. The one noteworthy conviction in the last 8 years was home-decorating guru Martha Stewart. What a joke. In his memoirs, Bush can boast, "At least we got Martha Stewart off the streets."

And it's not just the justice system that lacks credibility either; it's the financial system, too. The stampede out of the stock market to US Treasurys shows how quickly trust can turn to panic. The downward spiral of the economy reflects the mood of the country; dark and gloomy. That's not something that can be changed with more liquidity. After all, the economy is more than the sum of its parts, just like people are more than just consumption machines that can be zapped like rats into spending themselves into oblivion. They're sentient beings who can see the deteriorating economic conditions closing in on them and threatening their security. They're scared. Bernanke--the academic--sees the economy through the lens of his research on the Great Depression. He, like many other monetarists, believe that the depression was the result of the one-third contraction in the money supply during the 1930s. It is a widely held view and it could be true. But if that's the case, than why haven't the Fed's myriad lending facilities--which have flooded the financial system with trillions of dollars of liquidity--stopped the markets from crashing and the recession from deepening. Could it be that there were other factors besides just money supply? People are hunkering down for a reason, and its not just lost revenue. They've lost faith in their institutions--the government, the banks, and the media; everybody is in it for themselves, and it shows. Even now, with the economy teetering at the brink of disaster, high-ranking officials like Paulson are still diverting hundreds of billions of dollars from the Treasury to their Wall Street buddies leaving nothing behind but a few scraps for the working stiffs. And Paulson isn't alone either; his Darwinian "dog eat dog" creed is the prevailing ethos of the corrupt oligarchy that runs the country, Republican and Democrat alike, it makes no difference. It's "me first" and the public be damned.

If Bernanke really wants to know how the economy is doing, he should pay a visit to any town or city in America. Business is off everywhere; it's not just retail. The restaurants, the gas stations, the dry cleaners; even the casinos are hurting. The lines at the food banks are longer than the unemployment lines, and the only business that's booming is the pawn shops where the family silver is traded away for gas money or a few bucks to blow on groceries. This is what recession looks like from the ground floor where people are struggling to just make ends meet. No more 3-course dinners at Olive Garden and no more $5.25 lattes and cranberry scones at Starbucks. It's Campbells for lunch, Spam for dinner and plenty of wool blankets for evening TV.

Does Paulson think he can "turn off" the public's pessimism like a light switch? Does Bernanke think he can get people to spend themselves further into debt by lowering interest rates? It can't be done. And the Obama camp is going to run into the same brick wall. The nation's confidence has been shaken and people are developing a bunker mentality.

The truth is, Obama was shoehorned into the White House because the ruling elite saw that the country was slipping into a consumer-led depression. They needed a bright new face to restore confidence and spark optimism during the tough times ahead. But now that he's been elected, they've surrounded him with the very men who, to great extent, created the present crisis. Lawrence Summers pushed for the repeal of the laws which prevented commercial banks from merging with the Wall Street casinos and he also helped to deregulate derivatives trading which now threatens to bring down the entire financial system if a major player, like Citigroup, goes under.

Timothy Geithner and Lawrence Summers were central figures in the bubble-driven growth and deregulation mania of the last decade. Their influence factored heavily into the speculation that was brought on by low interest rates, easy credit and massive leverage; the lethal combo that created the present crisis. Their elevation to the top positions in the administration --along with Paul Volcker--proves that the Obama presidency is just more political fakery; a charming and charismatic figurehead placed in front of the executive podium to conceal the machinations of deeply-entrenched interests who are busy rebuilding the trickle-down system from the ground up. There's nothing new here, and certainly nothing progressive. The much-celebrated "Dream Team" is an amalgam of Rubin-clones who used Obama as a land-bridge to the White House to strengthen the status quo and get on with the task of shifting the nation's wealth to Wall Street's economic royalists.

The fact is, the Obama star-studded economic recovery team emerges from the same ideological petris-dish as Bernanke and Paulson. Their world view is shaped by the same strong sense of entitlement which will ultimately prevent them from enacting the regulatory reforms that they need to be put in place to restore transparency, confidence and credibility. Instead, they will unleash a torrent of stimulus spending (infrastructure and green technology mainly) followed by unorthodox monetarist/fiscal chicanery (like purchasing stocks on the equities market or buying long-term Treasurys) all of which will hide the fact that they are not forcing the bad debts out into the open so they can be written down and the markets can reestablish equilibrium.

No one disputes that Geithner, Summers and Volcker are smarter and more competent than Team Bush, and that, their Keynesian plan to inject massive doses of stimulus into the economy will have a positive effect. But that's as far as it goes. The men behind these remedies are limited by institutional loyalties that will keep them from overhauling the system in meaningful way. Neither Summers, nor Geithner nor Volcker would ever dare to tamper with the revenue-producing system which maintains the orderly division between rich and poor. That just won't happen.

So, after the fanfare subsides and Obama's economic team puts its stimulus plan in motion, there should be some marginal uptick in economic activity. But unless the underlying problems are addressed, there's little hope of any lasting recovery. The banks need to take their medicine and write down the losses. Regulators have to decide which institutions are solvent and can be saved, and which are underwater and will have to be shut down. The Obama administration will have to open a bank morgue like the Resolution Trust Corporation (RTC) so the bad assets from failed banks can be sold at auction to the highest bidder. That's the only way to put this whole mess behind us and start to dig out. Putting the securities up for bid will restore confidence and, eventually, lure investors back into the stock market. It will also remove the zombie banks from hanging on and depending on government bailouts. There's a method for unwinding sick banks through restructuring debt. It needs to be put to use.

Regardless of what the new administration does, the stock markets will take another leg down between the end of 2009 to early 2010, finding a bottom on the Dow of 4,500 or thereabouts (70% plus declines took place on the NASDAQ following the dot.com bust, Japan during the 1990s "lost decade" and the Great Depression. In none of these cases was the bottom reached in the first year) Hedge fund redemptions will force more deleveraging and more wild swings in volatility. The banks, which have accounted for nearly half of their losses, will need to write off another $800 to $900 billion before its all over. No one knows where they'll get the capital. Unemployment will skyrocket, housing will overshoot to the downside, and there will be the first random incidents of political instability in major US cities. The economy will remain flat on its back for some years into the future. How quickly the markets rebound will depend on how fast Obama's team grasps that the system needs deep structural change and a banking system that is not paralyzed with debt.

t's a depression
Seattle Post Intelligencer - USA
"Many of the symptoms" are the same, including the impotence of monetary policy -- like cuts in interest rates -- that has not halted the economic downturn. ...


What If the Recession Does Turn Into a Depression?
GigaOm - San Francisco,CA,USA
It’s far from certain — it’s even a fairly remote possibility — but the possibility of an economic depression is being discussed more and more these days. ...


The New Obama Administration: A Lot of More of the Same
Dissident Voice - Santa Rosa,CA,USA
Indeed, if there were to be an economic depression in the coming years, such a depression would still be called the “George W. Bush depression”, ...


Wall Street futures point to fall in quiet half-day trade
Reuters - USA
There are no major companies due to report, nor is any economic data due to be released. * On Wednesday, the Dow Jones industrial average rose 2.9 percent; ...


Economic upheaval creates virtual parallel presidency
Baltimore Sun - United States
... have likened the current economic upheaval to the plight that Franklin D. Roosevelt faced when took office in the depths of the Great Depression. ...


Fixing the economy
Los Angeles Times - CA,USA
But today's economy is not like the one in 1993, when Congress tacked a tax increase onto its economic stimulus package. The country was coming out of a ...


Turbulence Ahead
Wall Street Journal - USA
I asked an economic expert a few weeks ago if a second Great Depression would come to look at all like that, like a catastrophe, and he said no, not at all. ...


Uncertainties bedevil plans to keep world trade flowing
The Canberra Times - Canberra,Australian Capital Territory,Australia
... Commerce pointed out recently that parallels are being drawn between the financial and economic crisis of today and the Great Depression of the 1930s. ...


Obama: Illusions and Reality
Socialist Alternative - Seattle,WA,USA
Of dire necessity, his main priority will be to stave off a deep and possibly prolonged economic downturn, a new ‘depression’. ...

'The Return of Depression Economics and the Crisis of 2008,' by ...
Los Angeles Times - CA,USA
Yes, he is right in his claim that "depression economics" is very relevant to economic discourse and policymaking today -- for it is only by knowing ...


The Financial Page Enter, Pursued by a Bear
New Yorker - United States
Geithner will be well partnered: Christina Romer, who will be running the Council of Economic Advisers, is an expert on the Great Depression, ...


Economic downturn has more folks stashing their cash
USA Today - USA
Few economists believe this downturn will become another Great Depression. But the economic slump could have a lasting impact on Americans' savings habits, ...



Washington Times Will Obama repeat FDR's mistakes?
Washington Times - Washington,DC,USA
Franklin D. Roosevelt's New Deal initiated social programs as an answer to the economic catastrophe of the Great Depression - many of which were clearly ...


2008 economic problems don't compare to Great Depression
Summit Daily News - Frisco,CO,USA
By DAVE PHILLIPS COLORADO SPRINGS — Louise Simpson first realized the extent of the Great Depression through the shoes. “I can still see them now,” said the ...


Armchair Survivalist offers good advice
Seattle Post Intelligencer - USA
"The main driver right now is the economic situation," he said. "A lot of people are deeply concerned we are on the cusp of another economic depression. ...


US Treasury and the Fed: too close for comfort?
Christian Science Monitor - Boston,MA,USA
... States Treasury in a host of measures this year aimed at stopping the economic slump and financial crunch from plunging the economy into a depression. ...

The Six Lessons from Last Week's Action
By David Rosenberg, North American Economist,
Merrill Lynch

1) Expect the worst recession in the post-WWII era
First, this is going to be the worst recession in the post-World War II era, in our view. The ECRI leading indicator hit a record low for the fifth week in a row – down to - 29.2 as of the November 21st week versus -28.2 the week before. This index, which leads real GDP by two quarters with a 70% historical correlation, is getting further and further away from the prior all-time low of -19.8 that defined the worst recession of the post-WWII era and saw a six-quarter consumer recession coincide with a 45% peak-to-trough decline in the stock market. Perhaps the fact that this bear market is proving to be even more severe is symptomatic of an economic downturn that will also prove to be deeper and more prolonged. After the flurry of data released just before Thanksgiving, we are now tracking close to a 4.5% QoQ annualized fall in real GDP in 4Q. This would be the largest pullback since the 1982 recession, and we see a similar contraction in the first quarter of 2009.


2) Capex is in a steep decline
Second, capex is in a very steep decline right now. Durable goods orders dropped 6.2% in October, the third decline in a row. Over that time frame, orders have plunged at a 39% annual rate, which is unprecedented. The retrenchment has spread to the tech sector, where order books were expanding at a 7% annualized rate over the three months to June. Currently, that same three-month trend has swung to a negative 13% annualized rate.


3) Consumer spending down sharply; savings rate is soaring
Third, consumer spending fell 1% in October, which was a near-record decline. This, in fact, was the fourth straight monthly decline, which is unprecedented. The savings rate is soaring; it leapt to 2.4% from 1.0% in September, in a sign of heightened risk aversion and cash preservation, and is a shift that we believe should be seen as secular, not merely cyclical.

This was a conclusion that came through loud and clear in the Conference Board's Consumer Confidence Index, principally in the spending intention components of the survey. Auto buying plans dropped for the third month in a row to a record low in October while home-buying plans fell to their lowest level since the 1982 recession. Consumer plans to buy a major appliance fell to a 14-year low as well – down for three months in a row. During this four-month period of unprecedented consumer retrenchment from July to October, spending on discretionary items collapsed at an average annual rate of 18%. Even spending on groceries has declined 6%, toiletries are off by 6% and utilities are down 3%. So, even some of the classic staples are being curtailed.

The only areas that have posted increases in spending over this unprecedented four-month decline in spending have been pharmaceuticals (+7%), telecom services (+3%), medical care services (+5%) and mass transit (+26%) – all other forms of transportation, from rail to bus to air fell at a 19% annual rate.


4) Obama planning a $700 billion fiscal package
Fourth, we learned this week that President-elect Obama's economics team is planning a fiscal package as big as $700 billion over the next two years. We are going to wait for the details to see how this is going to impact our base case macro forecast. Suffice it to say that the cornerstone of the stimulus this time around will likely be infrastructure, not tax rebates. The key for investors is where these outlays will be concentrated, which, in turn, means identifying the areas of the capital stock that have been the most underinvested in recent years. After sifting through the data, we believe that the prime candidates will be hospitals, waste management services and passenger transit.


5) Housing market is not close to bottoming out
Fifth, we learned that the housing market is nowhere close to bottoming out. New home sales dropped 5.3% in November to a 433k annualized rate – the worst since the 1982 recession. Even though sales are now down 69% from the July 2005 bubble peak of 1.39 million units, we believe builders have not been aggressive enough in curbing production because the most critical variable of all, the unsold inventory backlog, rose to 11.1 months' supply from 10.9 in September.

Need to see inventory backlog drop to 8 months' supply

The reality is that even though single-family starts have dropped to 26-year lows of 531,000, they are still running 23% above the prevailing level of new home sales. The worst the inventory-sales ratio ever got in the early 1990s real estate meltdown was 9.4 months' supply. We are currently 18% above that level and almost 40% higher than the 8 months' supply we would need to see before calling an end to the housing deflation phase.

Another 15-20% decline in home prices likely from here

As we saw last week, the Case-Shiller index fell 1.85% MoM or at a 20% annual rate. All 20 cities were down both sequentially and YoY. Home prices are now down a remarkable 22% from the 2007 peaks. With the unsold inventory sitting at the third highest level of the past three decades and mortgage approvals for new home purchases falling to their lowest level in nine years, we believe the laws of supply and demand point to a further 15-20% decline from here. So, of all the things that happened last week in the market, retailing stocks up 17%, the bank stocks up 26%, tech up 9%, the one development that probably has the greatest chance of being reversed is the 60% surge we saw in the homebuilding group.


6) Fed has switched December meeting to a two-day affair
Sixth, we learned that the Fed is going to make the December FOMC meeting a two-day affair instead of one (December 15-16). The market is already sniffing out a 50 basis point rate cut. However, now that the Fed has de facto embarked on the process of quantitative easing, perhaps the need for a two day meeting is to iron out a more aggressive plan to revive the credit markets and the economy. The only areas that have posted increases in spending over this unprecedented four-month decline in spending have been pharmaceuticals (+7%), telecom services (+3%), medical care services (+5%) and mass transit (+26%) – all other forms of transportation, from rail to bus to air fell at a 19% annual rate.

As Chairman Bernanke suggested in several speeches he gave back in 2002 and 2003, one of the deflation-fighting strategies would likely involve Fed action to nurture lower rates at the longer end of the yield curve. Perhaps this prospect is behind the rally in the 10-year note yield and long bond to cycle lows. This would fit in very well with our ongoing strategy of focusing on equity sectors that have income-generating characteristics like utilities, health care and telecom services; these sectors also screen very well in a negative nominal GDP growth environment.

]The Hyperinflationary Depression
Nov 30, 2008 - 05:37 AM By: Eric_deCarbonnel


http://www.marketoracle.co.uk/Article7539.html

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