The Resourceful Bear Blog

State corporate rule was rejected by both the currency traders and the stock investors today
Gaius Marius relates in article Dictatorship Of The Treasury relates that the banking system is being nationalized piecemeal and that the facility of TARP is nationalization of the financial system.

I say that the announcements of our leaders Ben Bernanke and Hank Paulson relate a political and economic coup, for the purpose of establishing state capitalism, that is state corporatism.

John writes in The Beast Arises Through Economic Crisis: "By using monetary inflation as a sapping device, the FED is knocking down the few federalist pillars that, at least in theory, separated the various layers of government. It is also preparing to nationalize key segments of the commercial economy. All of this is being done through the FED’s New Deal era “emergency powers” to extend “credit” to any entity it chooses, whether governmental, commercial, or “public-private partnership.”

The revolution of 1913-1933, which inflicted the Federal Reserve, income tax, and the New Deal apparatus upon the United States, left us with a system Mussolini described as a “corporate state,” more commonly known as Fascism.

Admittedly, the American version was milder than most, at least domestically. The Revolution of 2008 is consolidating the elements of that system into a monolithic, unitary State of the sort Lenin and his heirs would applaud.

The creation of the Federal Reserve in 1913 was a partial enactment of the fifth plank of the Communist Manifesto, which called for creation of “a national bank with State capital”; last week, with the creation of a de facto economic dictatorship under the Secretary of the Treasury, Congress implemented the other key element of that plank, “centralization of credit in the hands of the state.”

Approval of the new economic dictatorship was the irreducible purpose of the so-called Economic Stabilization Act, which — true to the measure’s pedigree of grandly named government interventions — has summarily failed to stabilize the economy.

The $700 billion disbursed by the bill was a trifle, in light of the magnitude of the debt flood to be “bailed out” and the ability of the FED to create what it’s pleased to call “money” in any amount it chooses. But that relatively trivial amount was enough to create a constituency for the bill not only on Wall Street, but also in statehouses, city halls, and wherever else the Horseleach’s Daughters convene.

With both the corporatist and political elements of the parasite class enlisted to support the revolution, all that remained was the neutralize the productive class — the common people, who found ourselves on the bad end of what the reliably perceptive Chris Floyd calls “one of the largest single redistributions of wealth since the Bolsheviks seized power in Russia in 1917.”

Unanimity is, almost without exception, a bad thing in politics. The near-unanimity of the electorate in rejecting the Wall Street “bailout” measure is one of those incalculably precious exceptions. In the teeth of this near-unanimity, Congress — led by the Senate, supposedly the more deliberative chamber — took the rejected bill, an austere 3-page Enabling Act for the economic dictatorship, plumped it up with several hundred pages of bureaucratic boilerplate and undisguised pork, and passed it four days later.

Bribing a Congressman is generally about as challenging as seducing Catherine the Great. Getting the institution to surrender its institutional control over the public purse was a bit more difficult. Some Congressmen — well, at least one, perhaps two or three others — recalled their duty to their constituents, as well as their constitutional mandate to control the public purse, and held fast. Many others opposed the Enabling Act/Plutocrat Bailout because of simple terror over the prospect of immediate unemployment.

But in this case, bribery was coupled with undisguised official terrorism — the use or threatened use of violence to achieve a radical change in the political system.

As Brad Sherman, a Democratic Congressman from California, testified in a remarkable address on the House Floor — an address the likes of which will soon be punishable as sedition — that representatives of the Regime candidly informed recalcitrant congressmen that refusal to pass the Enabling Act would result in nothing less than “martial law in America.”

The problem with that explanation, of course, is that the Bush Regime is actively preparing for martial law. So is the German government. So is the British government. Most likely, so are other governments throughout the Euro-Zone, and everywhere else central banks are still coupled to the rapidly disintegrating dollar.

There is no way we can honestly construe the comments reported by Rep. Sherman as anything other than a legitimate, credible threat to accomplish, through a coup de main, what Congress was being ordered to do: Surrender its power over the purse to an executive branch department that is an appendage of Wall Street".

I relate that laissez-faire capitalism is dead. The Milton Friedman neoliberal free-market ideology that enabled securitization of auction rate securities, CDOs, subprime mortgages, and monoline bond insurance, is history. The age of financial neoliberalism, whose claim was that modern global financial markets would provide for stability and growth, is over. The University of Chicago Professor's policies have only resulted in destabilizing speculation, spectacular asset deflation, runaway product price inflation, and enslavement of Americans to debt and the taskmasters of government and banking.

The currency traders, with funding coming from 0.5% interest loans from the Bank of Japan, sold the EUR/JPY short, inducing those invested in stocks to sell ... FXE:FXY

And for short sellers, it was like shooting ducks in a pond; it was simply "click and shoot" to amass amazing returns. But beware, those who play with fire and financial alchemy, often get burned badly. There could come a liquidity run where brokerages globally will shut down without warning; and the day trader, and those still invested there, awaken to find their funds frozen like those in Iceland's banks: one may not always have full and immediate access to one's funds held in brokerage accounts.

The lending markets continued in freeze over mode: The Ted Spread traded at 4.3 which suggests that a total world wide financial collapse is imminent.

It is important to understand that there is no, repeat no commercial lending going on at the current time. Chan Sue Ling in Bloomberg article Shipping Lines Say Tight Credit Cutting World Trade relates that German banks with funds to lend are offering about 200 basis points above Libor, double previous rates, while in Singapore the rate is plus-350 points, according to Tobias Koenig, managing partner of Koenig & Cie. In the main though, shipping lines aren't able to borrow, he added.

``There is no rate because all banks are closed for business,'' he said. ``You have a few banks rescuing their best customers, but that's it.''

More than two-thirds of 104 bankers polled said they were unable to obtain funding at or close to Libor, according to an October survey by trade publication Marine Money Asia. About 80 percent expect shipping bankers will not be able to raise enough financing for clients this year and next, the survey showed.

``There are a lot of banks that will do deals today but they will do it on a bilateral basis with good clients, which they have long relationships with,'' Tom Zachariassen, an executive at Nordea Bank, said yesterday.

Libor, set by 16 banks in a survey conducted by the British Bankers' Association each day in London, determines rates on $360 trillion of financial products worldwide, from home loans to derivatives. The cost of borrowing in dollars for three months fell 12 basis points to 4.64 percent yesterday.

I relate that the Federal Reserve will be unable to stimulate lending in the marketplaces and the credit gridlock, that is, the lending gridlock, will continue for a number of reasons:
1) the banks know they are walking dead men, and simply want the TARP swaps to help preserve their balance sheet.
2) they are aware the consumer is tapped out and overextended and at risk for non payment of loans.
3) they want to preserve capital as they and their customers have exposure to settlement of credit default swap derivatives on Lehman Brothers and others.
4) there is no trust between lender and debtor as the fair value accounting rule of the SEC, and the mark to market provisions of FASB 157 have been thrown out the window.
5) there is an awareness that the CPFF facilities are for the top tier Fed invested nine banks.

The municipal bond market has seized up again, and the municipal bond ETFs and mutual funds will be falling awesomely lower in value, as a run on these gets underway.

States and municipalities are going to dramatically reduce payrolls. Funding for new projects cease will cease, and countless municipalities will be going into foreclosure. Only the most basic of services, such as a low level of law enforcement, will be provided.

Corporations, finding the commercial paper market place shuttered, are in a desperate way. They lack the cash on hand to cut payroll and accounts payable checks, buy raw materials, and order ongoing services, and as such are going to quickly close. Others finding lending closed, are not going to be able to refinance debt, and will fail, and go into bankruptcy.

Investment grade debt traded flat ... LQD

Junk bonds, HYG, fell 4% ... HYG

The municipal bond market, MUB, fell 3% ... MUB

Eddy Elfenbein relates today's carnage: "The Dow dropped today by 733.08 points to close at 8577.91. That's a loss of 7.87%. By percentage, this was worse than both October 9 (-7.33%) and September 29 (-6.98%). This was the worst day for the Dow since October 26, 1987, and it was the ninth-worst day ever".

Charts reflect the days transactions:
The gold ETF, GLD, traded slightly up to its 50 day moving average ... GLD

Gold, $GOLD, traded slightly down at its 50 day moving average at $840 ... $GOLD

The US Dollar, rose slightly to $82.09 ... $USD

US Treasuries, TLT, rose slightly to their 50 day moving average at 95.01 ... TLT

Oil, USO, fell 6% on an unwinding yen carry trade, that is, on a falling EUR/JPY. The media is reporting that oil is falling on grim economic data; however this is only partially true. Oil, like the stocks, are being driven lower by a falling yen carry trade, better termed euro carry trade. One of the greaest economic stories never told is that the Euro, FXE, as well as the other commodity currencies such as the Australian dollar, FXA, and the Canadian Dollar, FXC, in carry trades have carried stock values in great waves of gain and loss ... USO

Energy producers, XOP, fell 18% ... XOP

Energy services, OIH, fell 17% ... OIH

Metal and mining manufacturers, XME, fell 17%. Rio Tinto announced it is cutting production at some of its aluminum smelters in response to slowing Chinese growth. Rio Tinto chief executive Tom Albanese declared that the Chinese economy “is pausing for breath after spectacular GDP growth.” Shares in the mining giant plummeted by 16 percent in response to the announcement. Other energy and commodity firms’ stock also fell yesterday, including Alcoa (down 12.8 percent) and Exxon Mobil (14 percent) ... XME

Real estate fell 14% ... IYR

Real Estate REITS, RWR, fell 13% ... RWR

BRICS, EEB, fell 18% ... EEB

Emerging Markets, EEM, fell 16% ... EEM

World shares EFA, fell 11% ... EFA

The Nasdaq, QQQQ, fell 9% ... QQQQ

The Russell 2000, IWM, fell 9% ... IWM

Gold and gold alone is the measure and means of wealth preserving wealth in a deflationary investment world
David N. Vaughn relates in A Coming New Currency!, the Alf Field statement: "The resulting massive creation of new liquidity would destroy or vastly reduce the purchasing power of currencies as we know them today" ... "The assets in the most secure category at the tip of the inverted pyramid are gold and silver bullion, assets that have performed the function of protecting wealth throughout the ages. In the layer above the precious metals lie the companies that mine and hold large deposits of gold and silver".

Adrian Ash presents the question Why choose gold when the Fed lowers the central bank interest rates.

I recommend that one be invested in gold, because of financial system instability, lack of liquidity and because of possible inability of the US government to make good on its surety promises of insuring bank accounts, brokerages, money markets and now commercial paper. I recommend diversification of investment in gold in four locations immediately, yes immediately: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins purchased from sources like Kitco.com.

The end of monetary expansion ends in all things being rented to the central bank
Elaine Meinel Supkis in article Burns, Nixon, Gold And The New World Order Chinese relates "US government debt is now the ONLY really solid 'reserve' left as the Federal Reserve sells or rather, gives away, Treasuries in return for useless 'assets' which no banker in their right mind considers to have any realistic future value at this point. But the Treasuries themselves are drawn up against the biggest pool of potential wealth on earth: the accumulated holdings, belongings and future earnings of the American People, themselves!

Germany ended its monetary hyper-inflation collapse very simply: the government declared that all things in Germany were now going to be RENTED TO THE BANKS via fiat. The new currency was called, 'Renten Mark' which was a huge change from 'Reichsmark.' Governments can do this! When Germany finally went bankrupt less than 10 years later, all Germans were bankrupt. This total bankruptcy was dealt with very severely: the rise of Hitler and fascism coupled with the open looting first, of the Jews, then of all of Europe".

I relate that the United States is continuing down the same path as Germany, that is the end of monetary expansion ends in all things being rented to the central bank: all different types of debt is now being swapped out by the banks for US Treasuries as is seen in the US Federal Reserve Press Release of October 13, 2008.

Because of this, there will be a run on the US Treasuries, TLT, producing a rise in interest rates, $TNX, and a sell off of the US Dollar, $USD, especially through the currency traders obtaining 0.5% interest loans from the Bank of Japan, and going short the USD/JPY and short the USD/CHF. This will cause gold to rise in value. And US stocks, VTI, will continue to tumble lower in a death spiral together with the world stocks, EFA.

To address an ongoing dearth of liquidity and financial instability, the world bankers will institute a new international financial architecture, which see the rise of a global monetary authority, which will institute unified regulation of banking globally.

Soon there will be no national seigniority, as sovereign nations and their constitutions become history, as principles of global governance work through regional economic and security pacts or agreements; and these will serve as the basis for regional currencies. The US Dollar will be replaced with the Amero for purposes of commerce and trading in the North American homeland.

A world banker, a Seignior, meaning top dog who takes a cut, will arise to take charge of finance, banking, commerce and trade world wide. He will install a global seigniorage wealth and commerce system. This individual will have such a commanding way that interest rate differentials between nations and regions will disappear. All seigniorage will come and go through him: all sovereign wealth funds, and banks will report to him.

Once financial institutions fail, and stocks and bonds fail, and currencies totally burn out, the principle that "the end of monetary expansion ends in all things being rented to the central bank" will compel the Seignior to institute a one world currency system which is based upon the "mark" which comes from the Greek word charagma meaning "etching in", or "tattoo upon", or "stamp", or "badge of servitude", which enables one to conduct economic activity, and which authorizes one to receive economic benefits; the mark will be required in order to buy or sell.

Between the soon coming world leader, the Sovereign, and the world banker, the Seignior, they will own the world "lock, stock and barrel".

The Bible prophecy of Revelation Chapter 13 foretells the future
I. Introduction
The Apostle John wrote from prison, on The Isle of Patmos about 90 AD, the Revelation Of Jesus Christ, the last book of the Bible, which foretells those things which must shortly come to pass: meaning a series of events that once they begin, fall quickly into place one right after the other.

II. Revelation Chapter 13 tells of three separate beasts which rise to sovereignly direct mankind's activities (1).
A. Revelation 13:1-4 tells of a sovereign system which directs all of mankind's activities through seven institutions and ten regions of global governance.
B. Revelation 13:5-10 tells of a sovereign king, that is a monarch, who has sovereign power and authority to rule.
C. Revelation 13:11-18 tells of a globally sovereign religious leader and banker
He is the Seignior, meaning, top dog who takes a cut; in modern day terms, an investment banker, he is also the world's religious leader, and via investment and commerce connections institutes a global seigniorage wealth and commerce system (2).

This individual will have the financial experience or connections of CFR Co-Chairperson Robert E. Rubin or a John Paulson or a George Soros or a Tony Blair.

Photo of Treasury Secretary Robert Rubin, Treasury Secretary, and Alan Greenspan, the Federal Reserve Chairman, at a House Hearing in 1995 Photo by Stephen Crowley of The New York Times from the article The Reckoning Taking Hard New Look At A Greenspan Legacy by Peter S. Goodman who said of Alan Greenspan: "And his views held the greatest sway in debates about the regulation and use of derivatives, exotic contracts that promised to protect investors from losses, thereby stimulating riskier practices that led to the financial crisis. For more than a decade, Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street.

“What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

III. Verse Commentary

13:11 another beast This is a third of three beasts, who is preceded by the beast system, and the beast political leader; this beast promotes the power of the former two; and convinces the world to worship them both. He is called 'false prophet' in Revelation 19:20 and Revelation 20:10.

13:11 out of the earth Just as the Antichrist is the embodiment of Lucifer, Satan, the Devil, the false religious leader will be sent forth and controlled by a demon from the pit of hell.

13:11 two horns like a lamb This describes the relative position of the false prophet compared to the beast system which has ten horns. The word horn in scripture symbolizes authority; and lamb symbolizes peacefulness: He uses his position to adeptly resolve global economic, religious, political and natural resource conflicts. Yet his outward gentleness belays his real deceptive dealings to lord it over mankind.

13:11 like a dragon He has a commanding way.

13:12 exercises all the authority of the first beast This oracle yields all the power and influence of the beast system.

13:12 causes The word causes is used eight times of him. He yields influence to establish false world religion, which is Luciferian in nature: he entices and induces to eventually dominate the world.

13:12 to worship People are compelled to accept and worship, both the beast system, and the beast world leader.

13:12 whose deadly head wound was healed This refers to a catastrophic global financial breakdown.

13:13 great signs The words 'great signs' is used of Jesus in John 2:11 and John 2:23 and John 6:2. He works false miracles which cause the world to accept the beast system and the the Antichrist.

13:14 make and image to the beast He directs construction of a symbol, that is, a representation of the beast system.

13:15 speak The image of the beast system communicates, which is contrary to what is normal of idols.

13:15 causes to be killed His gentle appearance is a lie, he is a killer.

13:16 a mark He introduces a seigniorage system which is based upon the "mark" which comes from the Greek word charagma meaning "etching in", or "tattoo upon", or "stamp", or "badge of servitude", which enables one to conduct economic activity, and which authorizes one to receive economic benefits; the mark will be required in order to buy or sell (3).

All seigniorage comes and goes through him: all sovereign wealth funds, and banks report to him. There is no national seigniority, as sovereign nations and their constitutions are history, as principles of global governance working through regional economic and security pacts or agreements exist; and these serve as the basis for regional currencies.

His religious and economic power complements the military and political power of the sovereign king; and between this false prophet and the Antichrist, they own the world "lock, stock and barrel".

IV. Footnotes.
(1) Sovereignly means to rule in a monarch fashion; sovereign means to rule powerfully and authoritatively; the word came into use in 1250 to 1300. Dictionary.com

(2) Seigniorage means top dog bank note system, and comes from the Scottish and Bank of England financial system which was devised to maintain the value of currency The History of Seigniorage Wealth Elaine Meinel Supkis February 7, 2008 Money Matters Blog

(3) David Deschesne Editor, Fort Fairfield Journal, A Mark in the Right Hand or in their Forehead, Fort Fairfield Journal, July 6, 2005 in his explanation of Revelation Chapter 13:16-17.

V. Revelation Chapter 13, Holman Christian Standard Bible
The Beast System Arises Out Of The Mass Of Humanity To Direct And Rule All Of Mankind's Activities.
1 And I saw a beast coming up out of the sea; he had 10 horns and seven heads; on his horns were 10 diadems, and on his heads were blasphemous names.

2 The beast I saw was like a leopard, his feet were like a bear's, and his mouth was like a lion's mouth; the dragon gave him his power, his throne, and great authority.

3 One of his heads appeared to be fatally wounded; but his fatal wound was healed; the whole earth was amazed and followed the beast.

4 They worshiped the dragon because he gave authority to the beast; and they worshiped the beast, saying, "Who is like the beast? Who is able to wage war against him?"

The Sovereign King Rules For 42 Months.
5 A mouth was given to him to speak boasts and blasphemies; he was also given authority to act for 42 months.

6 He began to speak blasphemies against God: to blaspheme His name and His dwelling—those who dwell in heaven.

7 And he was permitted to wage war against the saints and to conquer them; he was also given authority over every tribe, people, language, and nation.

8 All those who live on the earth will worship him, everyone whose name was not written from the foundation of the world in the book of life of the Lamb who was slaughtered.

9 If anyone has an ear, he should listen:

10 If anyone is destined for captivity, into captivity he goes; if anyone is to be killed with a sword, with a sword he will be killed; here is the endurance and the faith of the saints.

The Sovereign Banker Institutes The Mark, Greek Word Charagma, Meaning Etching In Or Tattoo Upon, Which Is Required In Order To Buy Or Sell.
11 Then I saw another beast coming up out of the earth; he had two horns like a lamb, but he sounded like a dragon.

12 He exercises all the authority of the first beast on his behalf and compels the earth and those who live on it to worship the first beast, whose fatal wound was healed.

13 He also performs great signs, even causing fire to come down from heaven to earth before people.

14 He deceives those who live on the earth because of the signs that he is permitted to perform on behalf of the beast, telling those who live on the earth to make an image of the beast who had the sword wound yet lived.

15 He was permitted to give a spirit to the image of the beast, so that the image of the beast could both speak and cause whoever would not worship the image of the beast to be killed.

16 And he requires everyone—small and great, rich and poor, free and slave—to be given a mark on his right hand or on his forehead,

17 so that no one can buy or sell unless he has the mark: the beast's name or the number of his name.

18 Here is wisdom: The one who has understanding must calculate the number of the beast, because it is the number of a man. His number is 666.

VI. Further reading on Revelation Chapter 13
For continued reading on Revelation Chapter 13, I recommend: Beast System, Sovereign, And Seignior To Rule Mankind, Bible Reveals

My personal application
I believe that God is Sovereign, and as such from eternity past, foreknew, foresaw, and worked out today's events; everything is working out according to his foreordained plan.

While some reference the rule of law, and others the rule of men, I reference the Word, Will and Way of The Lord; and what ever comes of that so be.

I do as I am commanded by the Lord, I keep the 'Luke 21:36 Watch', that is, I watch and pray always that I might be accounted worthy to escape all these things (the end time horrors) that are coming, and stand before the Son Of Man.

Ohio, according to Forbes’ analysis, racked up three of the top five cities on the list of America's Fastest Dying Cities: Youngstown, Canton and Dayton. The runner-up is Michigan, with Flint in the top five and Detroit not very far behind.

The whole rust belt has seen a great exodus of people leave.

None of these cities have suffered the huge declines in real-estate prices seen by Phoenix, Miami or Las Vegas, where the Case-Shiller Home Price Index shows nearly 30% declines from a year ago. But don't call it a silver lining; prices never went up in the first place.

The ongoing Yahoo Finance chart of the Michigan and Ohio municipal bonds compared to the municipal bond ETF, MUB, shows they are winning the race to the bottom: ORMIX and OROHX municipal bond funds are falling precipitously in value.

The five day ongoing Yahoo Finance chart of the municipal bond ETF compared to the corporate bonds, the junk corporate bonds, the long term US Treasury Bonds, and the short term US Government bonds shows municipal bonds to be up today: chart of MUB, LQD, HYG, TLT, and SHY ...MUB, LQD, HYG, TLF and SHY

I do note that the value of both the US Treasuries and short term US Government Notes have been falling in value; the market place has called a defacto interes rate higher, questioning the AAA rating on US government debt, now that it has nationalized housing transferring risk of investment loss to the US citizens, and given that the Fed has swapped out so much valuable debt for mortgage backed securities which are marked to fantasy, and now swapped out for CDOs leveraged at spectaluar prices.

The chart of TLT shows that Peak US Treasuries is in ...TLT

Mark_OByrne in Market Oracle suggests that
62 Trillion Credit Default Swaps Threaten U.S. Government Bonds; and I add they threaten every financial instrument and every person of the world.

The five ongoing Yahoo Finance chart of the interest rate on the 10 Year US Government note, has increased from 3.5 on Tuesday October 7 to 4.1 ...^TNX

Stockcharts.com shows the breakout in $TNX ...$TNX

While the Fed has done awesome things to provide financial system liquidity, including in effect lowering the Central Banks interest rate to zero through offering unlimited dollar funds, the Federal Resrve will be unable to stimulate lending in the marketplaces and the credit gridlock, that is, the lending gridlock will continue for a number of reasons:
1) the banks know they are walking dead men, and simply want the TARP swaps to help preseve their balance sheet.
2) they are aware the consumer is tapped out and overextended and at risk for non payment of loans.
3) they want to preserve capital as they and their customers have exposure to settlement of credit default swap derivatives on Lehman Brothers and others.
4) there is no trust between lender and debtor as the fair value accountiang rule of the SEC, and the mark to market provisions of FASB 157 have been thown out the windown.
5) there is an awareness that the CPFF facilities are for the top tier Fed invested nine banks.

Soon the municipal bonds market will seize up again, and the municipal bonds in general, as well as the Michigan and Ohio bonds, will be falling awesomely lower in value as a run on municipal bond mutual funds gets underway.

States and municipalities are going to dramatically reduce payrolls. Funding for new projects cease will cease, and countless municipalities will be going into foreclossure. Only the most basic of services, such as a low level of law enforcement, will be provided.

The MSN Finance Chart of FDMMX compared to OROHX, MUB and CMF shows the decline in municpal bond value since September 11, 2008, when banks discovered they could not sell stock in the market place to raise capitalm; and in reaction the banks ceased lending.

The chart of The Ted Spread still reads high: today it stands at 4.3. If the value does not decrease, soon, one can expect a complete economic breakdown globally.

Keywords
ohiomunicipalbonds, taxexemptmutualfunds, taxexemptbonds, michiganmunicipalbonds, municipalbonds

Bryan Keogh of Bloomberg reports in article Overnight CP Costs Jump, Bond Risk Rises Amid Global Rate Cuts that overnight corporate borrowing costs jumped, default risk increased and the bond market remained all but closed after central banks worldwide cut interest rates, showing unprecedented government intervention was failing to aid companies struggling to finance themselves.

Lending gridlock remains: credit is unavailable

Overnight rates on dealer-placed commercial paper rose 56 basis points to 3.5 percent, while the cost of protecting corporate bonds from default rose. Two issuers sold $750 million of U.S. company bonds this week, compared with the weekly average this year of $16.8 billion.

The coordinated rate cuts come as companies struggle to fund daily operations and economists say the world is already mired in a recession. The Federal Reserve joined the European Central Bank and four others today in lowering interest rates by as much as half a percentage point in a coordinated effort to unlock short-term credit markets frozen since Lehman Brothers Holdings Inc. filed for the biggest bankruptcy in history on Sept. 15.

``We've reached the point where so many of these government plans have fizzled that the reaction is reserved until we actually see the impact,'' said Christopher Low, chief economist at FTN Financial in New York. ``They can't stop a recession. What they can do hopefully is prevent a really nasty recession.''

The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, whose rate is already 0.5 percent, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27 percentage point.

Banks remain on the sidelines: the Federal Reserve is the sole lender

``The reality is there's no private sector balance sheet willing to step in so the Fed and the Treasury are becoming the only balance sheet,'' said Mark Kiesel, executive vice president at Pacific Investment Management Co., the manager of the world's biggest bond fund. ``In a market that lacks trust and confidence the private sector is on the sidelines.''

Loans and liquidity will not be flowing until CRFF is up and operating

Today's rate cut follows the Fed setting up a fund yesterday to buy commercial paper, seeking to unblock the financing tool that drives everyday commerce for American businesses. The unit will purchase three-month dollar-denominated commercial paper at a spread over the three-month overnight-indexed swap rate.

``I don't expect any significant improvement until the program is up and running,'' Low said.

The $1.6 trillion market for commercial paper, which typically matures in 270 days or less, is used by companies to finance payroll, rent and other daily expenses. Issuers post the commercial paper rates they are willing to pay each morning.

Borrowing options dwindle interest rates become usurious

The market slumped last week by a record $94.9 billion, on a seasonally adjusted basis, led by financials and debt backed by assets, according to Fed data. Average overnight rates on dealer- placed commercial paper soared to an eight-month high of 3.95 percent last week, from 2.08 percent less than a month ago.

Corporate borrowing options have dwindled as the investment-grade bond market remained all but closed for a fifth week. Companies from newspaper firm Gannett Co. to electricity producer Southern Co. have been forced to tap credit lines or forego raising debt because of the market's disruption.

The mother of all lending spreads develop

Investment-grade bond yields yesterday rose to 7.98 percent, the highest since July 2000, according to Merrill Lynch & Co.'s U.S. Corporate Master index. Spreads relative to Treasuries widened 6 basis points to a record 514 basis points, more than five times their level in February 2007.

Default risk goes sky high as derivaties price in liklihood of failure of even the world's best companies

Credit-default swaps linked to the debt of retailers including Plano, Texas-based J.C. Penney Co. jumped 45 basis points to 320 basis points, according to CMA Datavision, as the economic slump threatens to ruin holiday sales. Contracts on Nordstrom Inc. widened 30 basis points to a record 270, and Office Depot Inc. widened 46 to 700, CMA data show.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. An increase in the contracts suggests deterioration in investor confidence.

The cost to protect against a default on U.S. high-yield, high risk loans also rose, the Markit LCDX index shows. The price of the index, which falls as sentiment deteriorates, dropped 0.5 percentage point to 89.1, according to Goldman Sachs Group Inc.

General Electric lowers its lending rates

Some direct issuers of commercial paper today lowered the rates they offer on the debt. General Electric Co. is willing to pay 1.25 percent on one-day paper, down 65 basis points from yesterday, according to Bloomberg data. GE cut the yield on 30- day paper by 45 basis points to 2.4 percent, the lowest in three weeks, Bloomberg data show. GE Capital, the finance arm of Fairfield, Connecticut-based GE, has $67.3 billion of commercial paper outstanding, the most of any company.

New York-based American Express Co., the biggest U.S. credit-card company by purchases, reduced its overnight offer rate 25 basis points to 1.75 percent. A basis point is 0.01 percentage point.

Libor, the world lending rate jumped

Before the global rate cut was announced, the London interbank offered rate, or Libor, that banks charge for such loans jumped 144 basis points to 5.38 percent, the third-straight increase, the British Bankers' Association said today.

The Ted Spread rose to the widest level ever suggesting that stock market and economic failure is at hand

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, widened to 3.87 percentage points, after widening to as much as 4.03, the most since Bloomberg began compiling the data in 1984.

``I do believe over time policy will work,'' said Kiesel, who oversees $180 billion of corporate bonds in Newport Beach, California. ``The problem with all these measures is it operates with a lag and the deleveraging is real time. The deleveraging cycle is operating on a real time basis much faster than policy can overcome it.''

The world economy has already fallen into its first recession since 2001, according to JPMorgan Chase & Co. economists Bruce Kasman and David Hensley. The U.S. is ``definitely in a recession,'' Low said.

Money market funds have withdrawn from the commercial paper market place to invest only in US Governemnt Debt
Money-market funds, the biggest buyers of commercial paper, began to flee the market three weeks ago, pushing yields to the highest since January and persuading the Fed yesterday to backstop the market.

Prime money-market funds have pulled $200.3 billion of assets from commercial paper since Sept. 16, the day after Lehman filed for the biggest bankruptcy ever, and built up their safer government debt holdings instead, according to IMoneyNet Inc., a research firm based in Westborough, Massachusetts, that tracks money funds.

Central bank interest rate cuts temporarily liquify and save money market funds
The central bank interest rate cuts should ``stop the bleeding'' in money-market funds, Peter Crane, president of Crane Data LLC, a money-fund research firm in Westborough, Massachusetts, said in an interview.

``The rate cuts will help there's no doubt about that,'' he said. ``For money funds, they're manna from heaven.''

Commentary
Given that the commerical lending market place has completely broken down, an economic and stock market breakdown is imminent.

Soon blue helmeted military troops will be deployed under the command authority of NORTHCOM for civil security.

The emergency management provisions of the Security and Prosperity Partenership, the SPP, will be enforced and state corporatism, that is state corporate rule, will arise where stakeholders will be appointed to rule over the factors of production and oversee industry, commerce, trade and investment.

At that time, if the Fed's new liquidity facility CPFF is in effect, it will be available only for those companies which are deemed necessary for the security and prosperity of the homeland.

In a cultural, political, and economic sea change, the US Central Bank announced sovietization of lending
Today the US abandoned Milton Friedman's neoliberal laissez faire economic policies, that is free marketplaces, where privatization is the operative principle, to embrace sovietization of lending.

In as much as banks are no longer lending in the commerical paper lending marketplace, due to a lack of trust between lender and debtor, the Federal Reserve has announced a framework agreement and facility to become the sole lender in the commercial lending marketplace.

The Federal Reserve has stepped up to the plate to provide liquidity so companies can meet payroll, cut checks, and continue to issue purchase orders of consumables, services and raw materials.

Thus unfreezing a condition of lending gridlock, that is credit gridlock, has existed since September 11, 2008, when banks found they could not sell stock to raise capital, due to the questionable value of their assets, that is the debt, they hold on their books.

The Federal Reserve today has become provider of liquidity and capital to facilitate ongoing economic activity.

The Federal Reserve's role has expanded to become the Bank of Banks, that is, the nation's bank.

The Federal Reserve will become the United States' monetary authority and capital provider.

US Federal Reserve announces Commercial Paper Funding Facility, CPFF, to purchase U.S. commercial paper
Craig Torres of Bloomberg relates in article Fed to Purchase U.S. Commercial Paper to Ease Crunch that the Federal Reserve will create a special fund to purchase U.S. commercial paper after the credit crunch threatened to cut off a key source of funding for corporations.

The Treasury will make a deposit with the Fed's New York district bank to help set up the new unit. The central bank will also lend to the program at policy makers' target rate for overnight loans between banks. The Fed Board invoked emergency powers to set up the unit, the central bank said in a statement released in Washington.

Today's action follows a slide in the commercial-paper market to a three-year low of $1.6 trillion last week as investors fled even companies with few links to the subprime mortgage crisis. Companies from newspaper firm Gannett Co. to electricity producer Southern Co. have been forced to tap credit lines or forego raising debt because of the market's disruption.

The Fed's action is seen to provide liquidity to end the liquidity run in the commercial paper lending marketplace

The Fed's efforts are aimed at ``stemming the bank-run-like panic,'' said Mark Gertler, a New York University economist and research co-author with Fed Chairman Ben S. Bernanke. ``The immediate threat to the real economy is that large corporations are having difficulty obtaining funds via the commercial paper market.''

Fed officials in a conference call with reporters didn't say how much commercial paper, which hundreds of companies use to finance payrolls and meet other cash needs, it plans to purchase. The officials also declined to specify when the purchases would begin.

The central bank's special purpose vehicle will be big enough to backstop the entire market, one official said on condition of anonymity.

Issuers will be able to sell commercial paper to the Fed up to the average amount they had outstanding in August, an official said.

Policy makers began considering buying commercial paper several weeks ago as the market began to seize up, with borrowers increasingly only able to raise funds on a short timeframe, even just overnight, officials said.

The Fed's unit will buy three-month commercial paper, which should help issuers extend the maturity of their borrowing, an official said.

``While we have continued to fund without disruption, the Fed announcement today is an important development that will help restore confidence in the market and facilitate more lending,'' General Electric Co. spokesman Russell Wilkerson said. ``This is a positive move and we applaud the Fed's decisive action.'' The company is the biggest U.S. commercial paper issuer through its GE Capital finance unit.

Yields to fall

Fed officials anticipate that yields will come down significantly as a result of their initiative.

Yields on top-rated overnight U.S. commercial paper dropped 0.74 percentage point today to 2.94 percent, according to data compiled by Bloomberg. Borrowing for seven days increased 1.25 percentage points to 4 percent.

The Treasury's deposit with the Fed's special purpose vehicle will be substantial, officials said. The funds won't come from the $700 billion rescue plan authorized by Congress last week.

Stocks initially climbed and Treasuries sank after the Fed's announcement, while shares later turned lower. The Standard & Poor's 500 Stock Index was down 0.13 percent at 1,055.50 at 11:49 a.m. in New York. Yields on benchmark 10-year notes climbed to 3.51 percent from 3.45 percent late yesterday.

Today's announcement comes only hours before Bernanke gives his Economic Outlook today,

Today's announcement came hours before Fed Chairman Bernanke speaks on the economic outlook at 1:15 p.m. in Washington. He and Treasury Secretary Henry Paulson held discussions yesterday as stock markets slid and money market rates climbed as the crisis deepened.

The Fed's new unit will buy three-month dollar-denominated commercial paper at a spread over the three-month overnight- indexed swap rate, which is a measure of traders' expectations for the Fed's benchmark rate.

Fed officials on the conference call indicated that they would like the facility to be a backstop, which would suggest the special vehicle's rate would be set at a slight penalty to normal market rates. They declined to answer a specific question as to whether the rate would be set above current rates, or below, which would constitute a subsidy for borrowers.

The initiative is seen as a funding backstop

``The Federal Reserve will consult with market participants regarding appropriate spreads that are consistent with the facility serving as a funding backstop under more normal market conditions,'' the Fed said.

The commercial paper facility is heralded as only temporary

Commercial paper purchased by the vehicle must be rated at least A1/P1/F1, the Fed said. Issuers will pay the unit an upfront fee based on the commercial paper initially sold to the vehicle. The vehicle will cease buying commercial paper on April 30, 2009, unless the Board of Governors agrees to extend it.

The Fed will cap the amount of commercial paper each company may sell to the central bank.

The Fed announced yesterday that it will double previous facilities of TAF, TSLF, PDCF and emergency actions to as much as $900 Billion; and is considering announcing other initiatives as well.

The Fed yesterday said it will double its cash auctions to banks to as much as $900 billion, and telegraphed today's announcement by saying it was looking for other ways to alleviate liquidity strains.

The Fed's move is ``very unusual, very aggressive and a very bold step,'' said Chris Varvares, president of St. Louis- based Macroeconomic Advisers LLC, a forecasting firm. Assuring that corporations can fund their short-term cash needs ``is absolutely essential.''

Emerging Market Bonds Fell
There was not a central bank rescue facility announced for the emerging bond market; EMB fell 2%.

Municipal Bonds Fell
The Federal Reserve did not respond with a facility to Governor Arnold Schwarzenegger's plea for assistance. Nor was there a Federal Reserve facility announced to address the closed municipal bond market for other states such as Massachusetts.

The iShares S&P National Municipal Bond ETF, MUB, fell 2%.

Jeremy R. Cooke of Bloomberg in September 30, 2008 article reports: "U.S. state and local government bonds are headed for their worst quarterly performance in as much as 14 years as a wave of Wall Street consolidation undermines support for the municipal market. Tax-exempt bonds have fallen 3.15 percent since the end of June, according to Merrill Lynch & Co.'s total-return Municipal Master Index. The quarter's decline may exceed the 3.18% drop in the second period of 2004, which was the steepest since the 5.75% decline in the first three months of 1994."

Jeremy R. Cooke of Bloomberg in October 3, 2008 article reports: "U.S. states and municipalities were all but shut out of the tax-exempt bond market for a third week, as borrowers managed to sell less than 15% of a typical week's new fixed-rate issues, data compiled by Bloomberg show ... 'This market has run into trouble again,' T.J. Marta, a fixed-income strategist at RBC Capital Markets ... said ... 'The most recent dislocation will exacerbate the negative developments already taking place for state and local government finances.'"

Michael McDonald in October 2, 2008 Bloomberg article repots: "Massachusetts Governor Deval Patrick said he is seeking budget cuts amid financial market turmoil that forced the state this week to cancel plans to borrow money to fund operations. The governor, citing a $223 million shortfall in tax collections, ordered a spending reduction of 7%. The state this week canceled the sale of commercial paper as investors boycotted the markets."

These reports tell me that the municipal bond market has utterly broken down. This is a silent neutron bomb that is going to cause massive layoffs in state and local governments; these governmental units will basically have to go into shut down mode; except for some low level of law enforcement there will be a swift shut off of services.

US Stocks fell
Stockcharts.com reports that the overall US stock market, VTI, fell 6%.

Kate Gibson of MarketWatch reports that "investors offered only a tepid cheer for the Federal Reserve's latest move to ease frozen credit markets."

Peter Bookvar, equity strategist at Miller Tabak said: "How aggressive are you going to be ahead of earnings season?" .... "We have such frayed nerves; people are afraid to jump in no matter what." Bookvar related of the US and other central banks: "It's going to be raining money for the next couple of months."

After those midday remarks, the yen carry traders, who have been the principal investors in the financial sector since July 14, when they sold oil, USO, commodities, RJI, and gold, GLD, have been looking for a reason or several reasons to sell their investment in the financial sector; and today they found three:
1) a realization that the Fed is the sole provider of credit at least to the corporations; and that the banks are now simply walking dead men.
2) a fear of D-Day, that is this Thursday, when the first batch of credit default swaps are to be settled on the bankruptcy of Lehman Brothers
3) the announcement that Bank of America, BAC, fell 26% after reporting a 68% profit fall, slashing its dividend and saying it will attempt to raise up to $10 billion in common stock.

The yen carry traders sold their investments in the financial sector, which produced these loses: XLF -10; which induced homebuilding ITB -10, and real estate ICF -10, IYR -9, KBE -9, IAI -9, IAT -9.

The BRICS, EEB, sold off, producing these loses as well EWZ -10, EEB -10, OIH -10, SLX -10,

Among the financial-sector stocks weighing most heavily on the S&P, General Growth Properties, GGP, which fell 41%. The Chicago-based owner of 200 malls nationwide on Monday suspended its common stock dividend and announced the departure of its chief financial officer.

Also weighing on the S&P, Apartment Investment and Management, AIV, fell 27%. The Denver-based company is among the nation's largest owners of apartment complexes, and recently said it expects to take a $3 million to $6 million hit in the third quarter due to hurricane damage to its properties.

The yield curve has exploded higher
The yield curve had been steeping it exploded higher as is seen in interest rates, $TNX:$UST2Y, and in ETFs, TLT:BIL

Peak US Treasuries may be in, as the US Treasuries fell, they should have risen on today's lower stock values.
Today may be the end of the "so called" flight to safety in US Treasuries even if the Fed announces a surprise rate cut or announces even further facilities to provide liquidity.
Stockcharts.com reports SHY at 83.95 ... SHY

Stockcharts.com reports TLT at 99.28 ... TLT

The interest rate on the 30 Year US Government Bond ... $TYX

The interest rate on the 2 Year Treasury bill ... $UST2Y

The interest rate on the 10 Year US Government Note ... $TNX

Those invested in DXKSX found they were invested the wrong way.

We have the 'mother of all lending spreads'.
Unfortunately the US is going to a zero US central bank rate; now stealthily, soon overtly.

Scott Lanman of Bloomberg in article Fed Sets Floor Below Rate Target, Engineering `Stealth' Cut reports that the Federal Reserve may have trimmed borrowing costs yesterday without actually saying so.

The central bank used power granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month. The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent.

``Absolutely, it's a stealth easing,'' said John Ryding, founder and chief economist of RDQ Economics LLC in New York and a former Fed researcher".

As the US Government official rate is moving to zero, the world's interest rate as defined by the Ted Spread remained high today at 3.4; and not only that, there was no lending again today, that is, the markets remain frozen until the Fed's CPFF facility kicks in, so thus the market place interest rate is infinitely high, that is beyond measure.

A Ted Spread's above 2.0 for any extended period of time relates to me that economic heart of society, that is lending, has suffered a cardiac arrest. The failure of the Ted Spread to fall below 2.0 tells me that capitalism and investing is dead and cannot be revived. With a Ted Spread above 2.0, trust between lender and debtor has been destroyed.

The only thing that remains is for authoritarian government to arise, and to enforce framework agreements that have already been declared such as the Security and Prosperity Partnership of North America, the SPP. And to engage in greater collectivization as we see today, with the announcement of CRFF, where through working groups and councils, such as the NACC, and stakeholders appointed by government and industry, the factors of production are overseen, and capital and natural resources expropriated, for the benefit of what might be termed "the homeland."

I find the following suggestion for a lower central bank interest rate "terrifying", as I believe interest rates should be going higher not lower; yes I abhor low interest rates.

John Fraher in Bloomberg reports: "In the U.S., prices manufacturers paid for materials last month plunged the most since at least 1948, with the Institute for Supply Management's index dropping 23.5 points to 53.5 points.

The breakeven rate on U.S. 10-year Treasuries, a measure of price expectations, dropped to 1.4 percent from 2.6 percent in July. Japan is the only country whose bond market implies a lower inflation rate than the U.S. The rate represents the pace of inflation investors expect over the life of the securities.

All this is likely to make the Fed resume rate cuts, says Robert Dye, a senior economist at PNC Financial Services Group in Pittsburgh, Pennsylvania.

``If we're going over a cliff, we're not going to go over a cliff with a 2 percent federal funds rate,'' he says. ``What's the point of holding back?"

My observation is that the spread between the US government central bank interest rate, and the world market interest rate is 'the mother of all lending and interest rate spreads'.

The Fed's action must succeed to prevent a catastrophic 'financial system black out' that is a 'complete financial system shut down'.
Factors why banks are unwilling to lend include:
an awareness of rising unemployment raises the risk the debtor will not repay.
an awareness of the explosive danger that derivative counterparty risk provides to debtors.
an awareness of the risk of their own exposure to default events on credit default swaps.
an awareness of that their own stock value is going to fall rapidly, threatening their capital position, whereby they will have to close.

The hope is that the Fed's actions of being the insurer and provider of commercial paper will be broad enough and implemented quickly enough to prevent an economic shutdown from occurring at a rate faster than it did in the 1929 to 1932 Depression.

Today, the Fed is boldly going where no Fed has gone before. I do have to question, does the Federal Reserve have the legal and constitutional authority to do what it is doing?

I do not favor the US government being the lender of only and last resort. The provision of CPFF is a cultural shift of epic proportion to state corporatism, that is state corporate rule, and it is the nail in the coffin for the AAA rating of US Treasuries as well as the US Dollar.

The government printing presses will simply be printing money, which means that when unemployment increases beyond a certain future level, hyperinflation for food and clothes and shelter will result.

And a catastrophic 'financial system black out' that is a 'complete financial system shut down' may occur anyway, as panic unfolds over today's significant stock market sell off and a growing realization of the failure of the municipal bond lending market.

Gold rose to strong resistance
The chart of the gold ETF, GLD, shows a dragonfly candlestick, after a 3.5% rise to $87.25 ... GLD

Gold rose to close at $884 ... $gold

Peak US Dollar may be in given the nationalization of the commercial paper market
The dollar bullish ETF, UUP, is manifesting bearish at 24.95 ... UUP

The US Dollar, $USD, closed down at $81 ... $USD

Investment application
Because of financial system instability and lack of liquidity, I recommend diversification of investment in gold in four locations immediately: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.

Concluding Observation
It was the repeal of the Glass Steagall Act by Phil Gram and Bill Clinton that got us into this embroglio. And the neoliberal fairy tale economic policies of Milton Friedman encouaged capitalism to have a hedonistic party of greed, which has resulted in a collapse of trust between lender and debtor, resulting in the TARP and CPFF rescues. The result is a fast fall into state corporatism, that is state corporate rule where Americans have been enslaved unto debt.


Major symbols used in this report
MUB, TLT, GLD, UUP, SHY

Charts show that gold rose and stocks fell when Bush took his pen to sign EESA; perhaps this week saw Peak US Dollar and Peak Treasuries and a bottoming in gold providing a safe entry point for buyers of the safe haven metal.
The Russell 2000, IWM, fell 2.87% for the day to close at 619 ... IWM

The ongoing Yahoo Finance one year chart of gold, GLD, compared to IAT, IWM, IWN, and IWO, shows a rise of 18% for gold ... Gold is up eighteen percent since the Citigroup CDO Bust started October 8, 2007.

The ongoing Yahoo Finance dive day chart of gold, GLD comapred to ITA, IWM, IWN, and IWO, shows gold's stunning rise in value as stocks fell when Bush took his pen out ... Five day chart of gold shows gold's rise and stocks fall at Bush's command

The ongoing MSN Finance one month chart of gold, GLD, compared to ITA, IWM, IWN, and IWO shows the breakout of gold on September 11, 2008 ... One Month chart of gold shows the breakout of gold since the banks were unable to sell assets or raise capital beginning on 9-11-2008

The Stockcharts.com chart of the gold ETF, GLD shows a close at $82.59.

The Yahoo Finance ongoing chart of GLD relative to the EUR/JPY and the USD/JPY, provides fascinating insights into the interplay of gold and the two major currency pairs. A rising USDJPY and a falling EURJPY took the US Dollar up and gold down as the market took the bailout to be dollar friendly ... GLD down for the week.

One supporting factor for gold is the James Chen USD/JPY update which shows the chart of USDJPY at the brink of resistance.

Valeria Bednarik confirms in article USD/JPY For Today suggesting that the USDJPY is down from today's 105.35.

James Chen's USD/CHF made chart of the day; it suggests that the USDCHF has hit resistance and is headed down.

The Elliott Wave Analysis Of EUR/USD, USD/JPY and GOLD by TheLFB News for Oct 03 08 provides the EUR/USD chart suggesting that it will be going up; and the GOLD chart suggesting it will soon be fininishing an Elliott Wave 2 down and also heading up with a floor of $770 to $800 ... EURUSD soon to be going up ... GOLD bottoming from and Elliott Wave 2 down

US Government Bonds, TLT, closed for the week at $97.40 ... TLT

The Ten Year US Government Note, $TNX shows a close at 36.44.

The US Dollar, $USD, closed the week at $80.47 ... $USD Weekly and $USD Daily

Jesse in Committment of Trader report for the US Dollar provides this chart of DX Dollar at resistance.

The dollar bull ETF, UUP, courtesy of Jack Chan from JC's Buy and Sell Signals shows a bearish lollipop hanging man candlestick ... UUP manifests a lollipop

Gold, $GOLD, closed the week at $835 ... $GOLD

S&P 500, $SPX, closed down 9.4% for the week at 1099.23; this is the first time in four years Eddy Elfenbein relates.

Fertilizer manufacturer, Agrium, AGU fell 36% this week; this chart more than any shows how the Euro drove commodity stocks up and it relates took that the Euro as part of an unwinding yen carry trade lives up to its name the Armageddon Trade ... AGU

At the beginning of the week, I asked blog readers, Which Way For SFK And SDK?

Well, charts show SFK rose 21% and SDK rose 27% ... SFK and SDK

Debt ETFs were stable today; these include LQD, HYG, CFT and EMB which will likely continue to loose value; and the principal value of the tax free municipal bond mutual funds like USSTX, will likely continue to fall, as interest rates rise. And the municipal bond ETFs such as MUB and TFI will likely continually go lower as well.

The Ted Spread closed at 3.85; this is the code red alarm relating that a total financial system breakdown can come at any time!

Here are various helpful charts for your examination.
The on going monthly MSN Finance chart of the gold ETF, compared to world stocks, EFA, and US Stocks, VTI, and US Treasuries, TLT

The ongoing five day Yahoo Finance chart of gold, GLD, relative to the US Dollar ETF, UUP, and the Euro, FXE, and oil, USO

The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, EFA, and EEB

The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to IWM, and SPY

The on going five day Yahoo Finance chart of the gold ETF, GLD, compared to FXE, USO, and RJI

The ongoing ten day MSN Finance chart of EUM, compared to TWM, SDK, and SFK

The the ongoing five day Yahoo Finance chart of EUM, compared to TWM, SDK, and SFK

The ongoing five day Yahoo Finance chart of the yen, compared to gold and the world's major currencies

Gold relative to world stocks: GLD:EFA

Gold relative to US Stocks: GLD:VTI

Gold relative to the euro: GLD:FXE

Gold relative to world currencies: GLD:DBV

Gold relative to oil: GLD:USO

Here is the news report at 4:30 PM announcing that President Bush had signed EESA.
At approximately 4:30 PM ET on Friday, October 3, 2008, Julie Hirschfeld Davis and David Espo of the Assoicated Press reported:

With the economy on the brink and elections looming, Congress approved an unprecedented $700 billion government bailout of the battered financial industry on Friday and sent it to President Bush who quickly signed it. (Here is the roll call vote courtesy of MyWay showing how the House members voted).

"We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said shortly after the vote, although he conceded, "our economy continues to face serious challenges."

Underscoring that somber warning, the Dow Jones industrials, up more than 200 points at the time of the House vote, ended the day down 157.

The final vote, 263-171 in the House, capped two weeks of tumult in Congress and on Wall Street, punctuated by daily warnings that the country confronted the gravest economic crisis since the Great Depression if lawmakers failed to act. There were 58 more votes for the measure than an earlier version that failed on Monday.

"We all know that we are in the midst of a financial crisis," House Republican leader John Boehner of Ohio said shortly before casting his vote for a massive government intervention in private capital markets that was unthinkable only a month ago.

"And we know that if we do nothing, this crisis is likely to worsen and to put us into an economic slump like most of us have never seen," he said.

House Speaker Nancy Pelosi, D-Calif., said the bill was needed to "begin to shape the financial stability of our country and the economic security of our people."

Treasury Secretary Henry Paulson pledged to begin using his new authority quickly, and Federal Reserve Chairman Ben Bernanke said the central bank would work closely with the administration.

At its core, the bill gives the Treasury Department $700 billion to purchase bad mortage-related securities that are weighing down the balance sheets of institutions that hold them. The flow of credit in the U.S. economy has slowed, in some cases drying up, threatening the ability of businesses to conduct routine operations or expand, and adversely affecting consumers seeking financing for mortgages, cars and student loans. Some state governments have also experienced difficulty borrowing money.

The House vote marked a sharp change from Monday, when an earlier measure was sent down to defeat, largely at the hands of angry conservative Republicans.

On Friday, 91 Republicans joined 172 Democrats to support the bill, while 108 Republicans and 68 Democrats opposed it. Twenty-five Republicans and 33 Democrats switched their votes from "no" to "yes." One Democrat who supported Monday's version, Rep. Jim McDermott of Washington, opposed the bill Friday. One Republican who didn't vote Monday, Rep. Jerry Weller of Illinois, voted "yes" on Friday.

Several of the Democrats who switched were members of the Congressional Black Caucus who said presidential candidate Barack Obama had pledged to support legislation easing the burden on consumers if he wins the White House.

Republican presidential candidate John McCain also lobbied for the measure, according to aides who declined to release a list of lawmakers he called.

Following Monday's vote, Senate leaders quickly took custody of the measure, adding on $110 billion in tax and spending provisions designed to attract additional support, then grafting on legislation mandating broader mental health coverage in the insurance industry. The revised measure won Senate approval Wednesday night, 74-25, setting up a furious round of lobbying in the House as the administration, congressional leaders, the major party presidential candidates and outside groups joined forces behind the measure.

In addition, the measure was changed to broaden the federal government's deposit insurance program, and the Securities and Exchange Commission loosened a regulation to ease the impact of the distressed assets on the balance sheet of financial institutions.

Despite occasionally strong criticism of the added spending and tax measures, the maneuvers worked — augmented by a sudden switch in public opinion that occurred after the stock market took its largest-ever one-day dive on Monday.

"No matter what we do or what we pass, there are still tough times out there. People are mad — I'm mad," said Republican Rep. J. Gresham Barrett of South Carolina, who opposed the measure the first time it came to a vote. Now, he said, "We have to act. We have to act now."

Rep. John Lewis, D-Ga., another convert, said, "I have decided that the cost of doing nothing is greater than the cost of doing something."

Critics were unrelenting.

"How can we have capitalism on the way up and socialism on the way down," said Rep. Jeb Hensarling of Texas, a leader among conservative Republicans who oppose the central thrust of the legislation — an unprecedented federal intervention into the private capital markets.

It was little more than two weeks ago that Paulson and Bernanke concluded that the economy was in such danger that a massive government intervention in the private markets was essential.

White the main thrust of their initial proposal was unchanged, lawmakers insisting on greater congressional supervision over the $700 billion, measures to protect taxpayers and steps to crack down on so-called "golden parachutes" that go to corporate executives whose companies fail.

Earlier in the week, the legislation was altered to expand the federal insurance program for individual bank deposits, and the Securities and Exchange Commission took steps to ease the impact of the questionable mortgage-backed securities on financial institutions.

In the moments before the vote, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, pledged "serious surgery" next year to address the underlying causes of the crisis.

If anything, the economic news added to the sense of urgency.

The Labor Department said initial claims for jobless benefits had increased last week to the highest level since the gloomy days after the 2001 terror attacks. The news of the payroll cuts came on top of Thursday's Commerce Department report that factory orders in August plunged by 4 percent.

Typifying arguments the problem no longer is just a Wall Street issue but also one for Main Street, lawmakers from California and Florida said their state governments were beginning to experience trouble borrowing funds for their own operations.

Pelosi said, "We must win it for Mr. and Mrs. Jones on Main Street."

One month before Election Day, the drama unfolded in an intensely political atmosphere.

Members of the Congressional Black Caucus credited Obama with changing their minds.

Reps. Elijah Cummings and Donna Edwards, both Maryland Democrats, were among them. They said Obama had pledged if he wins the White House that he would help homeowners facing foreclosure on their mortgages. He also pledged to support changes in the bankruptcy law to make it less burdensome on consumers.

Obama's rival, Republican Sen. McCain, announced a brief suspension in his campaign more than a week ago to try and help solve the financial crisis.

Republican Rep. Sue Myrick of North Carolina, who switched her vote to favor the measure, said, "I may lose this race over this vote, but that's OK with me. This is the right vote for the country."

Myrick said she hadn't heard from McCain as she made up her mind about how to vote. "They told me he was going to call me. He didn't," she said.

The vote on Monday had staggered the congressional leadership and contributed to the largest one-day stock market drop in history, 778 points as measured by the Dow Jones Industrials.

Associated Press writers Jim Abrams, Charles Babington, Alan Fram, Suzanne Gamboa, Kimberly Hefling, Andrew Miga, Andrew Taylor, and Erica Werner contributed to this story.

The Emergency Economic Stabilization Act, EESA, doesn't make the credit crisis go away; it makes the credit crisis worse, much worse -- Here are 4 problems with EESA.

Problem #1: EESA helps only a few select banks and not banks as a whole.
... I relate that while Regional Banks, IAT, are currently up 22% since the US Dollar stock rally began, July 14, 2008, when the yen carry traders, sold oil, USO, and commodities, RJI, to go long the banks, the facility of TARP provided under the Emergency Economic Stabilization Act of 2008, that is EESA, is unlikely to be of much help to most regional banks.

The authority and facilities given to the Federal Reserve Chairman by the Paulson-Bush-Pelosi bailout legislation provide a rescue of derivative laden and threatend JPMorgan, Citigroup, Bank of America and Morgan Stanley, and not of the community and smaller banks.

The President said: "We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country."

That is understatement, they acted unconstitutionally, to provide frightening auhority and facilities to the Chairman of the Federal Reserve. The legislation does nothing to resolve the crisis; it assures that it will quickly escalate.

The reporter relates: "The Securities and Exchange Commission loosened a regulation to ease the impact of the distressed assets on the balance sheet of financial institutions."

Yes I know, that was unconscionable; the action is a denial and abandonment of The Truth. And as I write the Suspension Of The Fair Value Accounting Rule By SEC And Congress Is Causing Credit Gridlock And Places One's Investments At Risk .

Problem #2: EESA doesn't resolve the current crisis of confidence, that is a lack of trust, it exasperates risks stemming from unknown and unrevealed counterparty risk on derivaties and from a suspension of fair value accounting by ruling of SEC and by mandate of Congress.
... Blair Lee in October 3, 2008, Gazette.NET article Who Killed The House Bailout? wrote:

Predictably, the media gave congressional Republicans the full discredit for the $700 billion bailout plan's 228-205 defeat on Monday. But the voting patterns show a different story. A once-in-a-lifetime, unholy and inadvertent coalition of disparate congressional voting blocs sank the measure.

First, a bipartisan combination of conservative Republicans and Blue Dog Democrats balked at such a risky and expensive taxpayer-financed free market intervention.

Second, 78 percent of the 41 incumbents in tight re-election contests voted "no," responding to angry constituent e-mails. Political self-preservation knows no party lines: 17 of the "no" votes were Republicans, 15 were Democrats. Lesson: Don't propose sweeping, highly controversial legislation five weeks before a national election.

Third, the Congressional Black Caucus broke ranks with the Democratic House leadership and overwhelmingly voted against bailing out white, wealthy Wall Street.

House Democratic leaders, in one of those inexplicable Capitol Hill double standards, excoriated the Republicans but excused the Black Caucus because its members were casting "a vote of conscience."

Maryland's Congressional delegation offers a good example of what happened. The four white Democratic liberals (Hoyer, Van Hollen, Sarbanes and Ruppersberger) all voted "yes." Meanwhile, "no" votes were cast by Roscoe Bartlett, the Western Maryland conservative Republican, and by Maryland's two liberal Democratic blacks, Elijah Cummings (Baltimore City) and Donna Edwards (Prince George's and part of Montgomery). This has to be the first and last time in history that the 4th, 6th and 7th districts band together against the rest of Maryland's congressional delegation.

Missing from Maryland's voting pattern was a "no" vote by a closely contested incumbent. Wayne Gilchrest, the Eastern Store moderate Republican, might have played that role, but he was defeated in the primary, so he voted "yes." Likewise, in a fit of lame duck spite, he's backing Obama for president.

Congressman Bartlett and congresspersons Cummings and Edwards voted "no" together, but for completely different reasons. Bartlett, a free market conservative, wants to let the financial institutions solve their problems by themselves. In his view, the extent of permissible government intervention is taking the current $100,000 ceiling off FDIC deposit insurance and making it unlimited.

Meanwhile, Cummings and Edwards want to bypass Wall Street and spend the $700 billion directly on home foreclosure aid, unemployment payments, food stamps, home heating assistance and Medicaid. It's no coincidence that, together, Cummings' and Edwards' districts contain 58 percent of the state's recent home foreclosures. But neither their plan nor Bartlett's has a prayer of becoming law. Nor is doing nothing an option. Without a comprehensive approach, the government is left limping along, dealing with one bank failure after another.

Our financial system runs on credit and confidence. People must borrow money to make money. But banks won't lend to businesses and depositors won't lend to banks (or governments) without the reasonable expectation of being repaid, with interest. When that confidence disappears, so does our economy. The bailout stabilizes lenders and investors by having the government take $700 billion of devalued mortgage-backed securities off the balance sheets. In other words, in order to jump-start the nation's financial system, Uncle Sam becomes this toxic paper's buyer of last resort.

Maybe this is a bad idea. Maybe Roosevelt's New Deal was, too. But what's the alternative? Or put it this way: Isn't it wiser and cheaper to try something before, instead of after, the train wreck? How much would our parents and grandparents have paid to avoid the 1930s Great Depression and its aftermath, World War II?

Apparently, public opinion against the bailout is shifting somewhat: 45 percent now support it, while 44 percent say do nothing. Meanwhile, a revised $700 billion bailout bill passed the Senate on Wednesday night and heads to the House.

Senate passage was less difficult, because only one-third of that body is up for re-election, as opposed to all 435 House members, so only three senators in tight re-elections felt compelled to vote "no." Also, the Senate's Black Caucus is a group of one, Barack Obama, and he's now playing to a national constituency.

To gain House passage, the Senate's bill is loaded with billions and billions of new tax cuts and new spending to win the votes of naysayers like Bartlett, Cummings and Edwards. It will probably work at the expense of ballooning, even further, our national debt and national interest payment. Yes, folks, we're addressing the national crisis brought on by fiscal recklessness by being even more reckless. God help us.

Blair Lee is CEO of the Lee Development Group in Silver Spring.

Presented below are my related comments to Blair Lee.

He related "Congressman Bartlett and congresspersons Cummings and Edwards voted "no" together, but for completely different reasons. Bartlett, a free market conservative, wants to let the financial institutions solve their problems by themselves. In his view, the extent of permissible government intervention is taking the current $100,000 ceiling off FDIC deposit insurance and making it unlimited."

"Meanwhile, Cummings and Edwards want to bypass Wall Street and spend the $700 billion directly on home foreclosure aid, unemployment payments, food stamps, home heating assistance and Medicaid. It's no coincidence that, together, Cummings' and Edwards' districts contain 58 percent of the state's recent home foreclosures. But neither their plan nor Bartlett's has a prayer of becoming law."

"Nor is doing nothing an option. Without a comprehensive approach, the government is left limping along, dealing with one bank failure after another."

I say one option could have been to convene a Congressional investigation to completely investigate events of late, especially after September 11, 2008 when banks were unable to sell assets and raise capital. And of course to thoroughly investigate credit default swaps and their destabilizing ways as well as the destabilizing ways of yen carry traders who borrow at 0.5% interest fromt the bank of Japan to go short the EUR/JPY for great personal gain and the destruction of the world's economy.

Mr. Lee continues: "Our financial system runs on credit and confidence. People must borrow money to make money. But banks won't lend to businesses and depositors won't lend to banks (or governments) without the reasonable expectation of being repaid, with interest. When that confidence disappears, so does our economy."

I say there is indeed a crisis of confidence and a complete lack of trust, and it comes in large part from countyparty risk on default event settlement of derivatives of existing, and future financial organizations. Our nation and the world needed to address these risks but failed to do so.

Jesse in article Waves of Credit Default Swaps Incoming relates that its "time to start settling those Credit Default Swaps for Fannie and Freddie (Oct. 6), Lehman Brothers (Oct. 10) and Lehman Brothers (Oct 23)".

A lack of trust is that which is going to cause the destruction of the US Dollar, $USD, and send interest rates higher, such as the interest rate on the 10 Year US Government Note, $TNX, and send the value of US Government bonds, traded by the ETF, TLT down.

The legislation will accelerate an exit from municipal bond mutual funds and ETFS as well as money market funds, MMFs, owned by the wealthy.

"The bailout stabilizes lenders and investors by having the government take $700 billion of devalued mortgage-backed securities off the balance sheets. In other words, in order to jump-start the nation's financial system, Uncle Sam becomes this toxic paper's buyer of last resort."

I say the bailout stabilizes only a few select financial organizations JP Morgan and possibly Morgan Stanley, and actually destabilizes the rest as these two organizations and other crony bankers are likely going to be given preferential treatment. The debt will indeed be coming off the the publically approved SEC and FASB 157 balance sheets and income statements; but the assets are marked to fantasy and not to market, thus the securitized CDOs, mortgage backed securities, and other debt creates even more of a greater risk now becuase no one knows the true value as fair value rules, that is fair value accounting, has been thrown out the window.

We indeed are entering a new era, Uncle Sam is now the world's investment banker. The Federal Reserve becomes the Bank of Banks, and goes into the business of securitization of CDOs. The legislation nationalizes US Banks, and privatizes profits to a select group of elites, while it socializes risk and losses unto the US taxpayers.

Yes Uncle Sam is indeed the purchaser of the toxic paper, and becomes the buyer of last resort; and in so doing enslaves Americans, and really the whole world unto debt of the worst kind. The debt should have been liquidated, that is done away with, but it now remains and is the world's heritage and inheritance of a bygone era of credit liquidty, that started with the fairy tale neoliberal laissez fair economic policies of Milton Friedman, and continued through with the easy credit of The Purveyor of Credit Liquidity, Alan Greenspan, and culminated with the neocon helicpter drops of Ben Bernake lowering of the central bank rate, and provisions of TAF, TSLF, and PDCF facilities.

The econonomy will not be jump started, only a small portion of crony capitalists, that is those who participate in state corporate rule, that is state corporatism get a boost through public private partnerships to be signed by the government. Here stakeholders from business and government will become overlords and taskmasters of Ameican citizens.

"Senate passage was less difficult, because only one-third of that body is up for re-election, as opposed to all 435 House members, so only three senators in tight re-elections felt compelled to vote "no." Also, the Senate's Black Caucus is a group of one, Barack Obama, and he's now playing to a national constituency."

I wonder how many of the Black Caucus caved in. Those who did so, forgot their ancestor's history of slavery: their vote enslaved Americans and the world unto debt, and established bankers and government officials as the beast's task masters and overlords.

Problem #3: EESA's increased FDIC limits: these are going to take gullible leming investors up a hill, and then off a cliff to their destruction -- that is sad but true.

The smart investor anticipates what's gona happen to his money in banks and appreciates the value of gold.

Whereas, the gullible investor simply gets led off a cliff like a leming .... click here for image of gullible investor

... The reporter relates that "Earlier in the week, the legislation was altered to expand the federal insurance program for individual bank deposits." The raising of the limit of FDIC insurance accelerates the process of liquidity evacuation as investors flee stocks, and unfortunately municipal bonds which are especially liquidity stressed; the legislation herds investors into banks and away from the physical asset which will protect their wealth.

Problem #4: All liquidity supplied by EESA gets trapped and instantly vaporized.
... The facility of TARP provided under the Emergency Economic Stabilization Act of 2008, that is EESA, is designed to provide liquidity. Yet, all liquidity that has been provided by the Federal Reserve under currency swaps with other central banks, facilities of TAF, TSLF, PDCF, acquisitions of companies such as AIG and Bear Stearns, and emergency grants has literally disappeared as soon as it went into the system. The $700 billion to be provided will meet the same doom: instant vaporization.

The liquidity goes only to banks and major broker-dealers, the rest of the financial system has no access to it; the credit transmission mechanisms will not see even a dime of it, so thus corporations, educational institutions, municipalities desperately in need will be frozen out.

Peter Schiff in Safehaven.com article Liquidity Is In The Eye Of The Holder writes: The government is seeking to "create liquidity" by overpaying.

The government's assumptions about the "held to maturity" value of these mortgages completely understate the likelihood of widespread default. Some of the "illiquid" assets represent tranches of mortgage-backed securities that will be completely wiped out. Even the higher quality tranches will suffer severe losses due to mortgages that will inevitably go bad.

For example, take a $500,000 adjustable rate mortgage on a condo in Las Vegas that has a current value of only $250,000. To assume that this asset can be safely held to maturity is absurd, when in all likelihood the borrower will default shortly after the rate re-sets, even if the borrower has not yet shown signs of distress. Of course such a mortgage would be completely illiquid if one tried to sell it anywhere near par, but would be extremely liquid if priced to reflect a more realistic value; say 35 cents on the dollar. But if the government pays prices that fairly factors in likely defaults, it will bankrupt the very institutions it is trying to bail out.

Also missing in the discussion is the concept of the time value of money. Even if a substantial percentage of the $700 billion is eventually recovered, it will still represent a huge loss for taxpayers who theoretically have to come up with the cash today to buy the mortgages. Further, the inflationary nature of the bailout ensures a substantial rise in long term interest rates. This will further suppress the present values of the low coupon mortgages the government will be restructuring.

In addition to the government bailout, distressed lenders are looking to the suspension of "mark to market" accounting rules as a means of salvation. These rules require institutions to value their mortgage assets according to the most recently traded price. However, suspending these rules will not make the losses go away. Rather it will simply allow lenders to pretend that the losses do not exist.

Armed with such fantasies, banks could pretend that their mortgage assets had more value, and that their balance sheets were well capitalized. They would not need to raise more capital in order to fund new loans. But, just as a person with no sensitivity to pain runs the risk of catastrophic injury, such a move would encourage financial institutions to take greater risks which, in the end, will produce more bankruptcies and greater losses.

In fact, the Senate version of the bailout bill, which authorizes a suspension of mark-to-market, also increases the dollar limit on FDIC insured deposits from $100,000 to $250,000 (with no extra money budgeted to fund the increased taxpayer liability). Only in Washington would a bill pass which simultaneous makes banks more likely to fail while increasing taxpayer exposure when they do!

Gold is the timely safe haven.
I believe a run on stock brokerages is coming soon; and I suggest that one take one's money out of brokerage accounts, and that one buy gold, even though gold can easily fall from its current $835 to $825, $800 or $775, with a falling EURJPY.

And the gold ETF, GLD, could very easily fall to $77.50.

While bank accounts will have higher FDIC limits, I want something that is tangible, that I can secure, that I can personally own and have a large degee of personal control over.

I recommend diversification of investment in gold in four locations immediately because of financial system instability and lack of liquidity: the gold ETF, GLD, directly through streetTRACKS Gold Trust, and not in a brokerage account; two BullionVault, three GoldMoney; and four a limited number of gold coins.

I am simply a blogger who communicates what I see as an investment demand for gold; I suggest that one consult with a licensed investment professional before making any investment decisions.