Bear Mountain Bull

Jon Markman, at MSN Money, on bank bailouts and nationalization:

Personally, I loathe this neo-statism, which is a less objectionable term for socialism. The best course of action, which would have been the most painful in the short term but beneficial in the long term, would have been to force banks to open all their books to regulators and investors, allowing us to see which were solvent and which were not. Then the Federal Deposit Insurance Corp., which is sort of a mini-nationalizer, could have closed the bad banks and merged their assets into strong banks, and we would be halfway through the crisis by now.

Instead, the previous Treasury secretary, Henry Paulson, decided on this disastrous course of putting insolvent banks on life support at public expense, which has only led to a massive waste of money and time.

Now time is running out, because the next phase of the credit crisis is at the door: the part where we see a normal rise of loan defaults during a recession, further crushing banks’ earnings. At the moment, defaults are running at 2.5%, but history shows they will hit 10%-plus over the next year or two as commercial real estate and business loans sour. This is why fixing the banking system will not end the recession; it will help only to smooth the path of a turbulent descent.

Get out your parachutes — it’s going to be a rough landing.

The charts of the sector SPDRs remain quite unimpressive, as the market suffered through another rather poor week.

The numbers as the indices threaten a breakdown:

Charts courtesy of StockCharts.com

Ocala National Bank, Ocala, FL
Suburban Federal Savings Bank, Crofton, MD
MagnetBank, Salt Lake City, UT

Under cover of ’stimulus’:

It began one week after the swearing-in, when Nancy Pelosi whipped through a big expansion of the State Children’s Health Insurance Program. The Schip bill was Democrats’ first stab at stealth expansion, unveiled in 2007, though vetoed by George W. Bush.

Initially designed for children of working-poor families, this new Super-Schip will be double in size, and even kids whose parents make $65,000 a year will be eligible. The program will also now cover pregnant women and automatically enroll their new arrivals. The Congressional Budget Office estimates 2.4 million individuals will drop their private coverage for the public program.

Still, it’s the “stimulus” that has proven the real gift horse — a behemoth that has allowed Democrats to speed up the takeover of health care under cover of an economic crisis. They initially claimed, for instance, the “stimulus” would provide Medicaid money to states struggling to pay existing bills. What in fact it does is dramatically expand the number of Americans who qualify for Medicaid.

Under “stimulus,” Medicaid is now on offer not to just poor Americans, but Americans who have lost their jobs. And not just Americans who have lost their jobs, but their spouses and their children. And not Americans who recently lost their jobs, but those who lost jobs, say, early last year. And not just Americans who already lost their jobs, but those who will lose their jobs up to 2011. The federal government is graciously footing the whole bill. The legislation also forbids states to apply income tests in most cases.

House Democrat Henry Waxman was so thrilled by this blowout, it was left to Republicans to remind him that the very banking millionaires he dragged to the Hill last year for a grilling would now qualify for government aid. His response? A GOP proposal to limit subsidies to Americans with incomes under $1 million was accepted during markup, but had disappeared by final passage. In this new health-care nirvana, even the rich are welcome. CBO estimates? An additional 1.2 million on the federal Medicaid dime in 2009.

There’s more…

Gary Kaltbaum, on his radio show today:

“If more and more stocks are breaking down, the indexes come down with them. I am letting you know — more and more stocks are really breaking down now. And if that continues, there is only one way that the market is going — and that is down.”

	Amazon may be selling stuff…
	…but apparently FedEx and UPS aren’t delivering enough of it.
	The major indices threaten near-term support, and just below that, the November lows…
	…while gold and silver continue to move in the other direction.

Charts courtesy of StockCharts.com

The day started with a bounce up, but that bounce faded quickly and the indices spent the rest of the day dangling in the red. Wednesday’s big ‘rally’ is now nothing more than a memory, as the indices push down on near-term support, and still hang only a short distance above the November lows.

None of the indices were spared from damage:

Treasuries finally gained back a little lost ground, and yields were a bit lower:
6-month: 0.34%    2-yr: 0.92%    5-yr: 1.85%    10-yr: 2.81%    30-yr: 3.56%.

Internals were ugly again, but volume again pulled back just a bit. Advances/declines were 5 to 14 on the NYSE and 1 to 2 on the Nasdaq, with up/down volume 1 to 6 on the NYSE and 1 to 4 on the Nasdaq. New lows are on the rise, with new highs/lows at 7/87 on the NYSE and 3/112 on the Nasdaq.

The groups were all red, with the worst being the paper stocks (-11.1%), airlines (-6.4%), steel stocks (6.0%), networking (-5.0%), metals and mining (-4.8%), disk drives (-4.8%), computer hardware (-4.6%), banks (-3.8%), REITs (-3.6%), brokers (-3.5%), chemicals (-3.4%) and homebuilders (-3.4%).

Energy prices were mixed once again. Crude gained a few cents to $41.68/barrel, but gasoline continues to move higher, to $1.26/gallon, and natural gas slipped again, back to $4.40/mmBTU. The dollar index is still edging higher, today up to 85.84. But the precious metals are moving up as well — Gold and silver also moved higher out of their recent pullback, with gold added another 18 bucks to $926/ounce and silver gained a quarter to $12.63/ounce.

BMB Note:   After Wednesday’s bounce up, things have started to slip away rather abruptly — the number of new lows is picking up and those near-term support levels are back in play.

The market had better make a stand here, and quickly — or a retest of those November lows is going to be right around the corner.

Watch your step. The footing is getting pretty slick. Again.

Imagine that. People are figuring out that ‘buy-and-hold’ doesn’t work very well when the market tanks:

“What’s happening is people have learned that if you don’t take a profit it goes away,” says Kathy Boyle, president of Chapin Hill Advisors in New York. “Even somebody who’s really biased towards buy-and-hold is giving up.”

Emphasis added. Learn where the “SELL” button is, and how to use it.

Some banks are changing their mind, choosing not to sell off their souls to the government:

A small but growing number of community banks are backing out of the government’s bailout, which they see as fraught with hidden strings and government interference.

About 20 banks so far that applied for or had been approved to receive about $1 billion combined in taxpayer money have reversed course in the past month and refused to take the money. That’s just a fraction of the hundreds of billions of dollars the government already has spent, but it shows that taxpayers aren’t the only ones anxious about the financial bailout.

“The government’s going to own a good portion of these banks,” said David Heintzman, president of Stock Yards Bank & Trust in Louisville, Ky. The bank recently turned down $43 million in approved bailout money.

After Congress approved the $700 billion bailout in October, the government gave banks only a few weeks to decide whether they wanted to take part in the government investment program. Many applied to get a foot in the door, in case predictions of an economic collapse came true.

“We drank the Kool-Aid,” said Michael Ross, president of Fidelity Bank in Dearborn, Mich., which applied for about $29 million in November.

But as details emerged, the deal didn’t look so good. For Fidelity, taking the money would mean the government would have owned about 25 percent of the company’s outstanding stock. Then Congress and the White House could start calling the shots, Ross said. He remembers the government’s failure overseeing Freddie Mac and its sister company, Fannie Mae, the two housing companies so badly mismanaged they were taken over by the Bush administration.

“These are the guys who brought you Hurricane Katrina. These are the guys who were supposed to be watching Fannie and Freddie,” Ross said. “I’ve not seen anything like this, where they really are talking about nationalizing banks.”

From WSJ.com:

Senate Banking Chairman Chris Dodd has been in typically indignant form this week, opining on the financial crisis. Before his Tuesday hearing on Bernard Madoff, he demanded that regulators get to the bottom of any crime: “American investors deserve an explanation and the responsible parties must be held accountable!” And yesterday the Connecticut Senator denounced Wall Street bonuses and said, “I am urging — in fact, not urging, demanding — that the Treasury Department figures out some way to get the money back.”

Pardon us, Senator, but how about taking your own advice?

We refer to his promise to release mortgage documents for the two properties that he and his wife refinanced with Countrywide Financial in 2003. In June a former Countrywide loan officer charged that Mr. Dodd received preferential rates and had fees waived on those loans as part of a VIP program the company had for “friends” of the company’s then-CEO Angelo Mozilo. Mr. Dodd first issued a denial and then, days later, acknowledged that he was a “VIP” with Countrywide but said he thought it was “more of a courtesy.” In late June he pledged to make all pertinent documents public “at some point.” We’re still waiting.

It’s Friday — time for Larry McMillan’s weekly look at the market technicals (click here to view column with charts):

A number of cross-currents are buffeting the market at this time. The bullish ones are mostly related to the positive seasonality surrounding month-end, especially January month-end. The negative ones are the traditional intermediate-term problems that have beset the market for a long time.

The $SPX chart is rather neutral, although both bulls and bears could make their case. With last week’s decline bottoming out at 810 on four consecutive days, that area represents strong support. There is resistance at 920-930. So those two areas demarcate a trading range. Until there’s a breakout over 930 or a breakdown below 810, it’s a trading range.

The equity-only put-call ratios appeared to be on the verge of giving buy signals earlier this week, but have failed to do so. The standard ratio has pushed to new highs, so it is clearly still on a sell signal. The weighted ratio looks like it is still rising, as well, which would be bearish.

Market breadth has been erratic. Wednesday was a “90% up day” and Thursday was a “90% down volume day.” This sort of “all in” or “all out” mentality is not normal, and as long as it persists, there is high volatility — and probably high danger as well. Technically, the breadth oscillators gave new sell signals with today’s action.

Volatility indices ($VIX and $VXO) have trended down strongly this week, re-establishing a bullish downtrend in volatility. However, $VIX bounced off the 38 level again today, just as it did at the beginning of this year. So, if $VIX is to be truly considered bullish, it needs to close below 38. Without that, volatility remains high and does not bode well for the overall market.

In summary, when the market failed to break down through 810 last week, that was a major victory for the bulls. But now, they are hard-pressed to do much with it. We expect the January month-end bullishness to help the upside case in the short term, but after that, the bears may have their way again. In truth, only a breakout above 930 would prove the bullish case (that would re-establish a series of higher highs and higher lows). A breakdown below 810 would be very bearish and would surely lead to new lows.

What’s really “shameful” about this mess is that these same politicians that are now bitching the loudest were the same ones that ramrodded the TARP through the Senate in the first place, attaching it to a completely unrelated bill, if I recall correctly.

President Barack Obama fed a swelling populist revolt against Wall Street bonuses, calling it “shameful” that banks doled out $18.4 billion as taxpayers bail out companies and the U.S. remains mired in a recession.

The bonuses are “the height of irresponsibility,” Obama said today before meeting Treasury Secretary Timothy Geithner and Vice President Joe Biden at the White House. Firms need to “show some restraint and show some discipline,” Obama said.

The president joined politicians such as Senator Christopher Dodd, who today called for using “every possible legal means to get the money back.”

—

Dodd, a Connecticut Democrat who heads the Senate Banking Committee, vowed at a press conference at the Capitol to go beyond condemnation and seek a return of bonuses.

Guys — do I need to remind you that you voted for this crap, demanding that there be no strings attached, despite an outcry of public opinion against it??

I’m sorry Mr. President. “The height of irresponsibility” rests with you and your Senate colleagues. Some of us haven’t forgotten.

Conspiracy? Or just out and out stupidity?

From today’s Five Things:

1. Conspiracy of Fools

From a New York Times analysis of the components of the proposed economic stimulus package:

“Saving, or paying off debt, might make sense for individual households, but what the economy needs most is for people to spend money, helping stores to sell more, factories to produce more and employers to avoid cutting additional jobs.”

Sorry, but this is completely incorrect. By this logic, all we would really need to do to “fix the economy” is burn down a million houses a month, destroy our cars and throw away our clothes after wearing them (sorry dry cleaning industry!).

No wonder so many people believe in conspiracy theories. When these types of demonstrably false assertions are repeated over and over again it could lead one to believe there really is a coordinated effort between Washington politicians, the Federal Reserve and mainstream news organizations to make people dumber, presumably so they can take their money.

The reality is that printing money, which is precisely what is going to take place under this  $888 billion “economic stimulus” package, cannot create real savings or wealth, it can only redistribute it.

	The precious metals stocks are still holding up much better than the rest of the market. But that isn’t saying a lot…
	…as another Dow component digs new low ground.
	The Utilities haven’t gone anywhere, but they’re not sagging like the other indices are.
	The yield on the 30-year bond has moved up more than a full percentage point since the December low.

Charts courtesy of StockCharts.com

Yesterday we said we weren’t real convinced by the day’s big bounce up, and today you see why as the indices turned right around and gave back all of those gains and then some – hitting their lows for the day in the last hour of trading.

All of the indices finished lower, with the Utilities hanging on better than the rest:

Treasuries continue to struggle, and yields keep moving higher:
6-month: 0.34%    2-yr: 0.94%    5-yr: 1.81%    10-yr: 2.85%    30-yr: 3.59%.

Internals turned back to ugly, but volume looks like it might be just a bit lighter than yesterday. Advances/declines were 1 to 5 on the NYSE and 4 to 15 on the Nasdaq, with up/down volume 1 to 9 on the NYSE and 1 to 7 on the Nasdaq. New lows picked back up, with new highs/lows at 3/46 on the NYSE and 7/79 on the Nasdaq.

Nearly all losers in the groups today, and yesterday’s ‘favorites’, the financials, were right back near the bottom of the list. Leading the decline were the paper stocks (-9.0%), REITs (-8.3%), banks (-8.3%), homebuilders (-7.2%), brokers (-6.9%), insurance (-6.2%), airlines (-5.4%), networking (-5.2%), steel (-4.8%), semiconductors (-4.6%), oil services (-4.3%) and retail (-4.1%). Only the gold and silver stocks (+4.2%) managed to post gains.

Energy prices were mixed again. Crude slipped to $41.44/barrel, but gasoline was up another nickel to $1.23/gallon, and natural gas finally gained a dime to $4.57/mmBTU. The dollar index bounced a bit more, up to 85.29. Gold and silver also moved higher out of their recent pullback, with gold getting back more than 20 bucks to $908/ounce and silver adding almost 40 cents to $12.37/ounce.

BMB Note:   Good bank, bad bank, it doesn’t matter much to me. This still doesn’t look like a ‘good market’.

About the only area that remains of interest is the precious metals and associated stocks. That area has been outperforming the market as a whole, I like the looks of the charts, and the commodities can move independently of the rest of the market — it just so happens that the PM’s are the first commodity area to get moving. I dipped the very end of my toenail into the gold stocks today as they bounced up out of their recent pullback. But in this market environment, there are no certainties or guarantees, so fairly tight stops will be in order no matter what. As for the rest of the market, I ain’t interested.

Tomorrow’s the last trading day of the month, and Sunday is the Super Bowl. Seven long months ’til next season…

In a couple of words, not good. Record lows.

As always, Calculated Risk has the story, and better than that, the charts:

CR’s comments:

This is a another very weak report. Record low sales. Record high months of supply. Ouch. I’ll have more on new home sales later today …

Ouch is right. We’ll post the link to the new post when CR adds more.

This is the kind of thing I was talking about when I referred to the “point of no return” — where a minority of the population is footing the bill for the majority.

A Taxpayer March On Washington?

It seems like it’s getting to be time for this. The problem is that people who pay taxes are too busy working to earn the money on which to pay taxes to have time to go to Washington. Massive marches on Washington are reserved for those with no jobs, or nothing to do, or because they are on the dole of some kind, sometimes aided by federal subsidization of “community organizers” like ACORN.

That’s one of the reasons that big-government programs are a positive-feedback ratchet that are almost impossible to reverse. The programs have their own built-in constituencies, that are funded by the programs to allow them to agitate for more, while the ever-shrinking rest of us who are trying to actually earn a living get stuck with the bill. It can’t go on forever, of course, but it can go on long enough to ruin a nation.

When you see government tossing money around like they are these days, with a trillion dollars in ’stimulus’ that doesn’t stimulate anything at all, this becomes a very real and valid concern.

Thanks to Instapundit for the link.

What’s in that ’stimulus’ bill passed by the House this afternoon?

You don’t want to know. This is a complete and utter disgrace. Our new president and our Congress should be ashamed of themselves. Instead, they’re proud.

Starbucks’ success was just one of many symbols of our nation’s excesses — and their struggles are now a symbol of our nation’s resulting troubles.

From MarketWatch:

Starbucks built an empire on pricy coffee. Along the way, it fueled a nation’s excesses. Now, Starbucks is showing us the error of our ways and leading by example.

After landing another lousy quarterly report card, the coffee vendor is cinching up its belt. Again. Another 300 shops have to go. Another 7,000 employees will go with them.

The bottom line message from resurrected CEO Howard Schultz is that Starbucks (SBUX) has grown too big for its own good and needs to slim operations to match an increasingly tightfisted public.

The message is bone simple and hardly surprising. Most of us knew way back when we splurged on that first cup of Starbucks coffee that we were embracing a little luxury. We wanted to be seen strolling around with that little mermaid in hand, oozing confidence in ourselves, the economy and a sense that we somehow deserved it.

An entire generation has since passed into adulthood slurping frappuccinos as if it were some kind of birthright.

Meanwhile, those of us who still associate good coffee with Mrs. Olsen or Juan Valdez and his trusty burro knew all along that Starbucks was building Rome. Fun as it was, it felt vaguely decadent. We could see the writing on the wall the moment the credit crisis struck, making downsizing inevitable on all levels.

Investors knew it too, which probably accounts for the 5% spike in Starbucks’ share price ahead of today’s news. They understood the company still had a way to go to bring its ambitions back within the realm of economic reality. That, too, was inevitable.

The whole country is learning this lesson. And maybe having a little less caffeine coursing through our veins is a good thing, giving us a few calm moments to contemplate the next jolt to our system — what we’re going to do with the $825 billion stimulus package now taking shape in Washington.

Rex Nutting at MarketWatch:

The more unconventional the Federal Reserve’s policy becomes, the more it feels the need to explain itself.

In its statement on Wednesday, the Federal Open Market Committee didn’t change policy at all. It kept its interest rate target with a whisker of zero percent; it said rates would be low “for some time”; it vowed to continue buying mortgage-backed and asset-backed securities; and it said once again that it was prepared to buy longer-term Treasurys if warranted. Nothing new.

What was new in the statement was the explanation the FOMC gave for these unconventional moves. The Fed can’t lower interest rates any further, but it can do a lot to grease the wheels of commerce. Most of the statement was an explanation for why the Fed thinks the grease is necessary, and a few details on what brand of grease they intend to employ.

Part of the problem in the economy is the lack of confidence, especially confidence in the financial system. The Fed is doing all it can to persuade markets that it will turn this thing around, and that lending and investing will pay off again.

The result was the longest and most detailed FOMC statement on record. The typical FOMC statement covers about 300 words; this one weighed in at 474.

The statement went into much more detail about the economy’s performance and the likely outlook. Policy makers laid out the case for the unprecedented actions they’ve taken.

The FOMC repeated its commitment to use “all available tools” to bring the economy back to life. They went into great length about the tools they’ve got in the box, including a promise to buy longer-term Treasurys if they think that would help.

All that detail could be counterproductive. It may look like the Fed is doing some fancy footwork, but all they are doing really is bailing as fast as they can.

Hat tip to Mish. He had these comments regarding the Fed and the FDIC’s ‘bad bank’ plan:

Everyone knows a tsunami of bank failures is coming. Flooding the market with words and throwing the kitchen sink at the problem will not stop the impending wave of failures. In cases of tools vs. tsunamis, the tsunami will win every time.

	The banks are getting the biggest bounce out of the ‘bad bank’ buzz. But that hasn’t done much to change the look of the chart to this point.
	The triangles forming in the indices will have to be broken fairly soon.

Charts courtesy of StockCharts.com

More ‘hope’ today, as rumors abound of even more government intervention, the House debates the huge pork stimulus package and the Fed comes out with their non-decision. The financials led the bounce day in the market, buoyed by the news of the ‘bad bank’ idea being floated around (wasn’t that going to be TARP’s job — until Hank did an about-face? Now TARP is blowing its money elsewhere, and we’re going to somehow put together a ‘bad bank’ anyway? Where’s THAT money going to come from? Yikes…).

All of the indices got a lift, coming down well off their highs in the last hour before bouncing back up into the close:

Treasuries weren’t snowed by the Fed’s talk (yet again) about doing some buying. Long bonds got smacked down hard, and yields jumped:
6-month: 0.33%    2-yr: 0.88%    5-yr: 1.67%    10-yr: 2.65%    30-yr: 3.41%.

Internals were positive again, and volume did pick up from the lazy levels of earlier this week. Advances/declines were 7 to 1 on the NYSE and 15 to 4 on the Nasdaq, with up/down volume 8 to 1 on both exchanges. New highs/lows were 3/14 on the NYSE and 7/41 on the Nasdaq.

Nearly all of the groups were winners, led by the financials: banks (+14.3%), brokers (+10.4%), steel (+9.8%), REITs (+8.5%), disk drives (+7.9%), computer hardware (+7.7%), airlines (+6.5%), homebuilders (+6.1%), metals and mining (+6.0%) and oil services (+5.2%). The gold/silver stocks (-1.6%) gave up ground.

Energy prices were mixed. Crude gained a bit to $42.16/barrel, but gasoline jumped seven cents to $1.18/gallon, and natural gas slipped back to $4.47/mmBTU. The dollar index took a post-Fed jump up to 84.80. Gold pulled back another few bucks to $887/ounce but silver picked up a nickel to $11.98/ounce.

BMB Note:   Precious metals/stocks continue their pullback, the financials get the big ‘bad bank’ bounce, and the techs are showing a little bit of life.

But on the market as a whole, it seems to me we’ve been here before. The market slides to the verge of being down and out, with the financials in the crapper, and the government comes along with the promise (or rumor) of yet another program that sends the shorts scurrying to cover, and the market gets a boost. A boost, that is, for a few days…and then it fizzles out and heads back down again. At least that’s what has happened in all of the previous instances, and right now, this one doesn’t feel any different — especially with enthusiasm (i.e., volume) sorely lacking.

I challenge the market to prove me wrong. If it does, that would be great. If this really is the start of a big turnaround, I’ll be happy to play along. But I’m not very easily convinced these days…and you shouldn’t be either.

…is a non-event.

Here’s the statement. We have always been led to believe that the Fed folks were inflation ‘fighters’, but their true colors are coming out these days:

…the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

So, inflation fosters economic growth and price stability. That’s a new one on me. I can’t believe they actually say these things. In writing.

More straight talk from Mr. Practical:

The details of the good bank/ bad bank plan have yet to be revealed, but it’s important to remember one important point: Any program initiated by the government is a zero sum game, at best. The government can’t create wealth/productivity; it can only transfer wealth from one entity to another.

A government given the power to create money (debt) out of nothing, as our current financial system has been allowed to do since the creation of the Federal Reserve (particularly after Bretton Woods) results in the destruction of the value of the currency. Thomas Jefferson would label our current system unconstitutional.

The plan is a derivation of all the previous plans, with a new name and a new sponsor – the FDIC. Does anyone believe the FDIC can manage bad assets any better than the private market did? What the FDIC can do, with the help of the government, is create money (debt) to buy bad debt (I’m not going to call them “assets”). But what price do they pay the banks for it?

If a bad loan has a 50% chance of being paid back, perhaps its market value is $0.60 on the dollar. If the government pays $0.40 on the dollar for it they have a reasonable chance of getting the value back (as long as the situation does not deteriorate further).

But if the government buys the bad debts at $0.40 from banks, banks will have to take huge losses and possible go bankrupt. This is because they have no capital left to absorb those losses. I would guess the government would have to pay $0.75 on the dollar for banks to be able to transfer/break-even. This is probably what the government is thinking. So the chances of getting that money back for taxpayers is very poor.

To increase those odds, the government will then transfer wealth from the productive ones among you to those who have to pay back that debt. They will pay the healthcare and education and give poor jobs to people in debt. They will borrow the money to do this from our children. Essentially they will create money today and worry about paying it back later. When you create money, you devalue the money.

This is what the government plan is: To further destroy the value of the currency to try to help people and the economy. But remember: An economy is based on production, not the ability to borrow. The standard of living is based on wealth, which is created by production or income generation, not the ability to borrow that wealth from someone else.

We were borrowing from the rest of the world to keep our standard of living high. Now we’re increasingly borrowing from our children, who will eventually experience either much higher taxes or a much lower dollar; either will lower their standard of living.

But my words will fall on deaf ears. Policy is settling in. We just confirmed a Secretary of the Treasury who was directly responsible, as head of the New York Federal Reserve, for monitoring proper capital at all of our money center banks. They failed, because they didn’t have enough capital to support the vast lending they were doing. Geithner isn’t going to change his tune.

The one thing we can be sure of: The more government says these plans will “get us back on track to long-term ‘healthy’ economic growth,” the less that will be true. We’re only sustaining a too-high standard of living at the expense of our children.

The more the government pays over the real price for bad loans, the less deflation there will be (debt destruction) and the quicker hyper-inflation (currency destruction) will ensue.

Emphasis added.

naked capitalism passes along some opinion from the Financial Times:

The US debate over the fiscal stimulus is remarkable in its neglect of the medium term – that is, the budgetary challenges over a period of five to 10 years. Neither the White House nor Congress has offered the public a scenario of how the proposed mega-deficits will affect the budget and government programmes beyond the next 12 to 24 months. Without a sound medium-term fiscal framework, the stimulus package can easily do more harm than good, since the prospect of trillion-dollar-plus deficits as far as the eye can see will weigh heavily on the confidence of consumers and businesses, and thereby undermine even the short-term benefits of the stimulus package.

We are told that we have to rush without thinking lest the entire economy collapse. This is belied by recent events. The spring 2008 stimulus package of $100bn (€76bn, £71bn) in tax rebates was rushed into effect in a similar way and we now know it had little stimulus effect. The rebates were largely saved or used to pay down credit card debt, rather than spent. The $700bn troubled asset relief programme bail-out was also rushed into effect and its results have been notoriously poor.

The Tarp has not revived the banks or their lending, but it has supported a massive transfer of taxpayer wealth to the management and owners of well-connected financial institutions. Some of those transfers – as in the case of Merrill Lynch using its government-financed sale to Bank of America to enable $4bn in bonuses last month – are beyond egregious. Yet the US is now inured to corruption and in such a rush that even billions of dollars of public funds shovelled into Merrill’s private pockets in broad daylight barely merited a day’s news cycle.

The most obvious problem with the stimulus package is that it has been turned into a fiscal piñata – with a mad scramble for candy on the floor. We seem all too eager to rectify a generation of a nation saving too little by saving even less – this time through expanding government borrowing. First it was former US Federal Reserve chairman Alan Greenspan’s bubble, then Wall Street’s, and now – in the third act – it will be Washington’s.

The White House and Congress have stated an amount – $825bn to be spent mostly over two years – on top of a deficit that is already projected to reach $1,186bn in fiscal year 2009 without the stimulus package. Many of the details of allocating the $825bn are being left to Congress with the aim of reaching a bipartisan consensus. The result is shaping up to be an astounding mish-mash of tax cuts, public investments, transfer payments and special treats for insiders.

What we need is a medium-term fiscal framework, one that lays out an anticipated schedule of taxes and spending consistent with the needs of the economy and government functions. Rather than soundbites about ending pork-barrel projects or scouring the budget for waste, or about the relative multipliers of tax cuts versus spending increases (both of which depend on expectations about the future, a point mostly overlooked in the debate), we should be reflecting on certain basic fiscal facts, the most important of which is that the US government faces huge and potentially debilitating structural deficits as far as the eye can see.