"Bailout" won't stop the ship from sinking

Nov. 24 (Bloomberg) -- The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago. The unprecedented pledge of funds includes $3.18 trillion already tapped by financial institutions in the biggest response to an economic emergency since the New Deal of the 1930s, according to data compiled by Bloomberg. The commitment dwarfs the plan approved by lawmakers, the Treasury Department's $700 billion Troubled Asset Relief Program. Federal Reserve lending last week was 1,900 times the weekly average for the three years before the crisis. When Congress approved the Treasury Department's $700 billion Troubled Asset Relief Program (TARP) on Oct. 3, the need for transparency was acknowledged.Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in, as well they should. Better late than never but limitations need to be placedon the Fed so that authority returns to elected officials as opposed to appointed ones. Bloomberg News tabulated data from the Fed, Treasury and Federal Deposit Insurance Corp. and interviewed regulatory officials, economists and academic researchers to gauge the full extent of the government's rescue effort. The bailout includes a Fed program to buy as much as $2.4 trillion in short-term notes, called commercial paper, that companies use to pay bills, begun Oct. 27, and $1.4 trillion from the FDIC to guarantee bank-to-bank loans, started Oct. 14. Citigroup received $306 billion of government guarantees for troubled mortgages and toxic assets. The Treasury Department also will inject $20 billion into the bank after its stock fell 60 percent last week.There's no transparency to it so who's to say they're right in doing this.The worst financial crisis in two generations has erased $23 trillion, or 38 percent, of the value of the world's companies and brought down three of the biggest Wall Street firms.Regulators hope the rescue will contain the damage and keep banks providing the credit that is the lifeblood of the U.S. economy. Most of the spending programs are run out of the New York Fed, whose president,Timothy Geithner, is said to be President- elect Barack Obama’s choice to be Treasury Secretary.

The money that's been pledged is equivalent to $24,000 for every man, woman and child in the country. It's nine times what the U.S. has spent so far on wars in Iraq and Afghanistan. It could pay off more than half the country's mortgages.There's a lot of supposedly smart people who look to be totally incompetent and it's all going to fall on the taxpayer."

President Roosevelt’s New Deal of the 1930s, when almost 10,000 banks failed and there was no mechanism to bolster them with cash, is the only rival to the government's current response. The savings and loan bailout of the 1990s cost $209.5 billion in inflation-adjusted numbers, of which $173 billion came from taxpayers, according to a July 1996 report by the U.S. General Accounting Office, now called the Government Accountability Office.

And still they play and manipulate and have no cognisance of the fact that all the problems in the first place were produced by the behind the scene manipulators playing a game of chess with the worlds population as the pawns. It looks like this game will not end untill the whole American economy completely colapses and the human spirit rises to the rescue when there is a realisation that pieces of paper with little pictures on them can not save or help anyone or anything.

Future world economic events

Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events. His track record includes predicting the Crash of '87 and the 1991 fall of the Soviet Union. He successfully predicted the 1997 Asian Currency Crisis, the subprime mortgage collapse and the massive devaluation of the U.S. dollar. He predicted in a November, 2007 UPI article that 2008 would be known as the "Panic of 2008" in which he specifically warned that "giants would tumble to their deaths." Celente's predictions aren't the result of either Divine revelation from Heaven or demons working a Ouija board. It's more along the lines of 'prophesying' that a dog left in the house for three days will poop on the floor. That's why we spent as much time as we did examining how the economy got into this predicament. So you could see for yourself that Celente is simply analyzing the trends -- putting two and two together and coming up with four. That, plus his track record, which demonstrates that he's been paying attention to those trends. Let's compare what Celente sees for the next four years, based on current trends, to what the Bible predicted would befall a single generation, somewhere in time.

"There will be a revolution in this country," he said in a recent interview. "It’s not going to come yet, but it’s going to come down the line and we’re going to see a third party and this was the catalyst for it: the takeover of Washington, D. C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen." This is what Celente predicts as well -- he says that the country is going to suddenly realize that they've been had. "The first thing to do is organize with tax revolts. That’s going to be the big one because people can’t afford to pay more school tax, property tax, any kind of tax. You’re going to start seeing those kinds of protests start to develop." "We’re going to start seeing huge areas of vacant real estate and squatters living in them as well. It’s going to be a picture the likes of which Americans are not going to be used to. It’s going to come as a shock and with it, there’s going to be a lot of crime.' "It’s going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we’re going to see many more." "And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people’s minds weren’t wrecked on all these modern drugs – over-the-counter drugs, or crystal meth or whatever it might be. So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody’s comprehension."

I checked Celente out. He's the real deal. He has been hailed as some kind of predictive genius by CNN, USAToday, the Wall Street Journal, the Economist . . . the point is he is neither a crackpot nor is he regarded as a crackpot by the mainstream. So, what does this mean to us? Well, lots -- and not much. It depends on your own perspective. It doesn't mean that much in the sense you probably already know all this. Maybe not Gerald Celente or the Trends Research Institute. Or his track record. But by and large, the narrative is familiar. Is Celente right on every detail? I don't know -- the details haven't all unfolded. Gerald Celente is forecasting four years into the future based on his analysis of current global trends.

Getting better

In a brave and sensible move, the Reserve Bank of Australia has ridden to the economy's rescue with a big 0.75% interest rate cut just as some negative types have been predicting a recession. Mind you, they might end up being right, but this action by the RBA increases the chances of making them wrong.

The listed 12 positives that had mounted up and happily the local and global stock markets have come in on cue to swing to the positive.This is the summary:

- Deutsche Bank research said over the past 80 years a bottom of a bear market has been created in the last week of October.

- November has a great track record for stock markets, and historically November to April has been good for share prices.

- This bear market has run longer than the average bear market.

- The 3-months LIBOR versus Fed Funds rate spread has fallen to around 200 basis points, but it was 330 basis points.

-Stock markets look 6-9 months ahead and things might look crook now but in 6-9 months the US economy could be coming out of recession.

- The US consumer confidence measure dropped to the lowest level ever, which sounds bad, but there's history showing that there is usually a big 20% plus bounce of the stock market after the consumer confidence reading hits rock bottom.

- The roll out of the rescue package for the banks has been well-received.

- Co-ordinated interest rate cuts worldwide are raising hopes.

- Valuations for great companies look attractive.

- The volatility index or fear index is falling.

- A range of US companies have reported surprisingly good numbers.

- The US election will take away uncertainty and that should be good for share prices.

Memories of 1991

We were hit by recession headlines. Leading these warnings is the chief economist from J.P.Morgan, Stephen Walters, who has pulled out the dreaded R-word."Australia faces its first recession since 1991 as prices fall next year for iron ore and coal, the nation's largest exports," he said.He thinks the economy will contract in the six months to March because of weakening export growth, which will cause companies to put off or even KO investment spending. And he has dragged down his calendar year forecast for growth from 1.4%, which he made on October 22 to 0.7%.The good news was that he argues the Reserve Bank will have to be more aggressive with their interest rate cuts to minimize the damage. And that's what the Big Bank has done with its surprise 0.75% cut in their cash rate of interest.

In the opposite corner

Against Walters we have the CEOs of ANZ and St. George - Michael Smith and Paul Fegan - who have predicted that Australia will dodge a recession.Even the Deputy Governor of The Reserve Bank Ric Battellino has argued we will avoid a recession.If the Big Bank was as negative as Walters, it would be shooting for a 4% cash rate, but this would also be in the context of rising unemployment and bankruptcies.At this stage, the RBA's view is more preferable to J.P.Morgan's. So, who is more likely to be right?Walters thinks the December quarter will be negative 0.3% and 0.4% for the March quarter. He thinks the 40% plus of the stock market, frozen funds and negative headlines will spook the consumer.

What the chief economists think

By the way, none of the big name economists at the big four banks are out there claiming their crystal balls are revealing a recession.Bill Evans, Westpac's chief economist, can't see a negative December quarter. "We are expecting zero growth in the March quarter and then only very small growth as the effect of the stimulus dies away," he said.And NAB's chief economist Alan Oster also has tipped no recession.Meanwhile, ANZ's respected chief economist Saul Eslake dismissed the speculation about a recession here in Australia.Finally, CommSec's Craig James has weighed into the argument criticising doomsday merchants and also insisting that we can avoid a recession.So at the moment, good stuff is outweighing bad stuff - to put it very simply - but we still have a long way to go.

What we have to hope for is some really smart government decisions right around the world and central bank decisions that help keep confidence as high as it can be, given the economic problems that are still out there.

The good news is...

This week's credit markets kept improving and European governments talked about a co-ordinated fiscal policy response to try and kick-start the Eurozone economy.Then along came the US election result with a win to Barack Obama, which should be another positive for the US economy.The good continues to outweigh the bad!