"As long as the Federal Reserve and the US government take actions that debase the dollar, the dollar price of gold will rise," says GoldMoney.com's James Turk. "Similarly, as long as the Bank of England and the UK government take actions that debase the pound, the Sterling price of silver will rise. It is a certainty, just like night follows day.

"Years from now we will look back at today's action with amazement at how low the price of gold and silver were, just like I can today look back to my college years when gold was only $35 and an ounce of silver could be had for 46 pence. It is a distant memory - and those prices will never again be seen. Eventually a three-digit dollar gold price and single-digit Sterling silver will never again be seen, as long as those currencies continue to be mismanaged and continue on the path to the fiat currency graveyard.

"...the dollar and pound are being debased, and in the absence of any policy advocating sound money in the US and the UK, inevitably gold will hurdle $1,000 and silver will clear £10."

"Frugality is the new normal," says an Associated Press report. One study suggests that consumer will spend 14% less - even AFTER the recession is over.

Boomers are out of time. Out of money. And they'll be out of luck unless they trim expenses and begin saving.

They've figured it out. Personal spending has fallen in 4 of the last 6 quarters. It hasn't done that since 1947 - when they first began tracking it.

Consumers' net worth has taken a big hit - down $13 trillion, from $62 trillion to $50 trillion.

And so, the simpletons think the government has to rush in where fools foundered...that is, they rush in with more money.

But where do the feds get any money? They have to borrow it...or print it. There's a big difference between federal borrowing and private borrowing. When the private sector borrows the risk is that people won't be able to pay back their loans. That is a risk that lenders live with. They know the risk; they factor it into their decision-making. Sometimes they're right. Sometimes - such as when economists mislead them with a lot of gibberish numbers - they're wrong. And when they're wrong, borrowers default...and lenders lose money.

The feds, on the other hand, can't default. At least, not when their debts are calibrated in money they control. But there's the risk right there. And it is a different kind of risk. It's the risk that the feds may choose to pay back the loan in much cheaper currency. Or merely make a mistake that results in much cheaper currency.

Imagine a private borrower who could print up a few extra bills in his basement to pay his monthly mortgage. He may not do so...perhaps his sense of honor would prevent him. Or maybe he would fear that he wouldn't be allowed to borrow again. But if his back were to the wall, there is little doubt that he'd soon be in the print shop.

The feds are in the print shop already. They're printing up more dollars intentionally - to try to get inflation rates up...and to finance federal borrowing. It will be a miraculous thing if their new dollars don't eventually cause inflation. But the macroeconomists who run the print shop tell us not to worry. They've got it all under control. They're already talking about when and how to withdraw the dollars they so helpfully provided during the crisis period.

The simpletons - who had no idea that the crisis would come...and then thought it could be easily contained...and then mistook it for a monetary, banking crisis...and then judged it over before it had really started...

...these same simpletons still do not understand that the problem is not a lack of money, it's a surplus of debt...

..they now reassure us that they know just how much money to put into the system...and just when to take it out.

If you believe them...you might want to stay in stocks and US bonds. If not, you should head for cover.

The country is being run "by a gang of clueless bozos," says Lee Iacocca, in his new book.

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

• Why Do Men and Women Want Money and Power?
• Any Money That You Don’t Earn is Stimulus
• The Feds Are Trying to Avoid Deflation
• Obama Admits: America is Out of Money
• Have the Feds Given the Economy a Miracle Drug?

"Cash is for buffers, not for wallets," says the headline. Mr. Turner is making the point we have made many times. The US system of capitalism has become a system where the capitalists have no capital. The big banks have too little in savings...not enough 'buffers' to protect them from unexpected crises. They made a fortune during the boom years - loading consumers up with debt. But instead of holding onto the money to protect themselves against emergencies, they paid it out in bonuses and salaries. Then, when the crisis came - one they caused - they were without sufficient funds.

What do you do when you're a major bank and you are insolvent? Hey, you already know the answer. You turn to the government! Which is why Mr. Turner's comment is both very smart and very dumb at the same time. He's right; the banks should hold more capital. But the reason they don't is obvious: they know the government will bail them out. They figure they don't need much capital; the feds have plenty.

This is the problem economists call "moral hazard." If you protect people from their own excesses they will become even more excessive. On the other hand, if they have to pay for their errors, they'll be quicker to correct them.

Okay...well...maybe the banks still wouldn't save enough. But that would take care of itself. If the feds didn't intervene, the insolvent banks would go under; those left would - by definition or accident - be better run.

Bill Bonner
for The Daily Reckoning Australia

• Can Government Bureaucrats do a Better Job of Allocating Capital than Free Markets?
• Gold is in a Bull Market
• The Government Bureaucrats of East Germany Exist in the United States of America Today
• Deleveraging Will Give Us a Bout of ’30s-Style Deflation
• David Murray Says You Become Dependent on Global Banks When Importing Capital

Since the Great Depression, a period marked by widespread runs on banks, the FDIC has done a good job of fulfilling its mandate. So how are they doing in this crisis?

In a nutshell, they are in trouble.

The FDIC insures 8,246 institutions, with $13.5 trillion in assets. Not all of them are going bankrupt, of course. Yet as of late July, a disturbing 64 banks had gone belly up this year - the most since 1992 - costing the FDIC $12.5 billion. At the end of Q1, the agency was already asking for emergency funding.

And worse, much worse, is likely yet to come. The following chart shows the total assets on the books of the FDIC's list of 305 troubled banks. The list doesn't include the biggest banks that are considered too big to fail, as they are being separately supported with bailouts. By contrast, if the banks on this list fail, the FDIC is on the hook to have to step in and take them over and, of course, make depositors whole.

Other measures of how serious the losses at banks are becoming can be seen in the chart below, which shows charge-offs and non-current loans at all banks. You can see that the Net Charge-offs remain stubbornly high, with banks charging off almost $40 billion in bad loans in the last two quarters alone. And the number of non-current loans - loans where payments are not being kept up - is soaring.

Together, these measures indicate the potential for more big failures and more big bailouts coming down the pike.

Into the battle against bank insolvency the Fed brings a level of reserves that can best be described as paper-thin. From almost $60 billion last fall, the FDIC's reserves have been drawn down to only about $13 billion today, a 16-year low. A quick look at the FDIC's own data shows us how inadequate those reserves are compared to the deposits they are now insuring.

The chart below says it all:

As you can see, the Federal Deposit Insurance Corporation currently covers each dollar on deposit with a trivial 2/10ths of a penny.

And even that understates the seriousness of the situation: the $4.8 trillion in deposits the FDIC is providing coverage on doesn't include the expansion that now extends insurance coverage from $100,000 to $250,000 for normal bank accounts. That likely brings the exposure of the FDIC closer to $6 trillion. But that's pretty inconsequential at this point: using any reasonable accounting method, the FDIC is already bankrupt and will require hundreds of billions of dollars in government bailouts just to keep the doors open.

So, given the dire shape of its finances, what measures is the FDIC taking, you know, to batten down the hatches and all that?

For starters, they are expanding their mandate by guaranteeing bank loans - $350 billion and counting at this point. And the government has tapped the FDIC to play a pivotal role in guaranteeing the loans issued to buy toxic waste through the government's highly problematic and fraud-prone new Private Public Investment Partnership (PPIP). The FDIC's commitment to the PPIP is and may become limited based on its resources.

It is hard to draw any other conclusion but that hundreds of billions in new funding will be required to keep the FDIC operating. Given the catastrophic consequences of the FDIC failing, starting with a bank run of biblical proportions, there's no question it will get whatever funding it needs. By loading the new loan guarantee responsibilities and the PPIP onto the FDIC's back, the administration will go back to Congress and ask for the next large bailout.

Of course, in the end, all of this falls on the taxpayer, either directly in the form of more taxes or indirectly via the destruction of the dollar's purchasing power. Another bale of straw on the camel's back, and another reason to be concerned about holding paper dollars for the long term.

Regards,

Bud Conrad
for The Daily Reckoning Australia

• One in Four US banks Announce Unprofitable Quarter
• China Will Rule the Business World While America Finds Itself Heavily in Debt
• Fannie and Freddie are Finito
• Fed Now the Middle Man in Interbank Lending Market
• Aussie Banks Lift Rates

How fast the bankers redeemed themselves...just a few months ago, we were making jokes about them:

"What do you say to a banker who has lost his job on Wall Street?"

"Uh...can I have fries with that?"

But now they're geniuses again. And they can prove it...just look at their pay stubs!

And if there's any fear that these dumbbells might blow themselves up again, you can forget it. They've got the full faith and credit of the United States of American behind them. Here's the latest from Associated Press:

"The watchdog overseeing the federal government financial bailout says the government's maximum exposure to financial institutions since 2007 could total nearly $24 trillion, or about $80,000 for every American.

"The whopping amount compiled by the inspector general for the $700 billion Troubled Asset Relief Program takes into account about 50 initiatives and programs set up by the Bush and Obama administrations as well as by the Federal Reserve.

"Many of the programs are backed by collateral and the $23.7 trillion represents the gross, not net, exposure that the government could face. No one has suggested that the full amount, in fact, will be used."

It takes our breath away. The feds are squandering money faster than we can keep up with it. Each time we think we've got it measured - the total doubles.

Twenty-four trillion is real money. It's getting close to two full year's worth of the entire output of the United States...

Is there any wonder Americans' hate bankers? They are chiselers and scalawags...making huge profits for themselves when the getting was good...and then whining for the protection of Uncle Sam when their own debt bombs blow up on them.

But hatred for bankers is cyclical. It follows the credit cycle.

Of course, bankers are always rogues and idiots. No doubt about that. But sometimes we like them and sometimes we don't. In the movie, It's a Wonderful Life, Jimmy Stewart plays the sort of banker we like. His bank made money the old fashioned way - by helping its clients finance houses and businesses. That's what bankers do on the upside of a credit cycle.

The business model is remarkably simple. So simple even a banker can get it. You borrow from depositors at one rate. And you lend to borrowers (who are also depositors, usually) at a higher rate. What could go wrong?

Well...that's what makes bankers bankers. They manage to mess it up.

Messing it up is pretty simple too. Deposits are a cost. Loans are a revenue stream. The more you lend, the more you make. Naturally, bankers have a tendency to lend too much. As the quantity increases, quality decreases. The most creditworthy borrowers get their money first. By the end of the cycle, borrowers are marginal...such as the people who got subprime loans in 2004-2007. They were often people without jobs...without assets...and with no fixed addresses.

Bankers lend too much in a predictable rhythm - at precisely the wrong time. They work with numbers and put on a good show. But when it comes to lending, they are all heart. Give them a good boom and they are ready to believe it will last forever. Booms raise asset prices. People borrow to expand and take advantage of the boom-like conditions. Bankers lend for the same reason - to take advantage of customers' willingness to borrow. So, they are inevitably drawn to lending most at the height of a boom...that is, just before it turns into a bust.

To this tendency towards self-destruction, you can add in the modern finance industry's delightful innovations - such as its leveraged derivative instruments. Making these available to bankers is like inviting a dipsomaniac for the weekend and leaving the liquor cabinet unlocked; it's asking for trouble.

But everybody loves bankers in the boom stage. They make it possible to buy houses...expand businesses...and become upstanding, slavish citizens. A man without credit might be a freethinker or even a troublemaker. But give him a mortgage and he will show up for work on Monday and vote in the next election.

In small towns, bankers are leading citizens. They sit on the boards of hospitals and churches. They write letters to the editor of the local paper. They contribute to political campaigns, often keeping an eye open...hoping their state senator dies so they will have a chance to take his place. People ask their opinions and are careful not to offend them. They play roughly the same role...and hold roughly the same status of the local priest. The priest reveals the mysteries of holy orders. The banker reveals to the locals the mysterious truths of economics. When the going is good, he tells them it is because of their hard work, thrift and discipline. When the going is not so good, he shuts up.

When the cycle turns, bankers are pariahs. Nobody hates a banker like someone deep in debt. And at the end of a credit expansion, people are more deeply in debt than ever. The poor banker has to stay at home and draw the drapes, pretending to have gone to Florida for the winter...or to be out of town on business.

Now you can see why busts are so important. They are like an intelligence test for bankers. The dumb and the greedy are eliminated. That is, unless the government steps in to save them.

Just a few months ago, Americans despised bankers. Could it be that the cycle has reversed itself so quickly? Are they now revered again? Are mommas once again urging their babies to grow up and be bankers?

We don't think so.

Our guess is that they will be chumps and schmucks for years to come. And we've got 20 trillion reasons why. Yes, that's the difference between what Americans owe bankers at the bottom of the credit cycle and what they owe them at the top. The debt cycle has just crested with an all-time high reading of debt/GDP of 370%. It will take many years of paying that debt down...and/or inflating it away...before Americans like bankers again.

The big question in our minds is this: how will that debt get reduced? Will Americans actually pay it down? Or will inflation come to their aid?

And what will happen to the trillions of dollars' worth of debt the feds are adding? The latest report from Congress estimates deficits as far as the eye can see...even to the year 2020, when they are supposed to be still 7% of GDP - or about $1 trillion. What will happen when this bubble in public debt blows up?

We wish the answer were easier. Two years...or even one year...ago, we could look ahead and see what was coming with a fair measure of confidence. There was clearly a bubble in housing and the financial sector. Surely it would pop.

Now, we look through the glass darkly...

The bubble has popped. The government as responded as we thought it would. The markets have bounced, as we thought they would.

But now what? We're waiting for the next leg down. If we're right...stocks will fall hard as investors realize that there will be no quick recovery.

And then... our visibility is poor... but the feds are bound to come back with Stimulus II. It will probably involve quicker-acting tax cuts. And it will probably cause more jitters in the bond market...and eventually, rising inflation levels.

When? How much? Hard to say...

Until tomorrow,

Bill Bonner
for The Daily Reckoning Australia

• The Interest Only Mortgage Option
• The More Money in a Financial System the Less Each Unit is Worth
• Bankers Pull Another Fast One
• Until This Debt is Reduced, Americans Will Be Reluctant to Borrow or Spend
• Why Do Men and Women Want Money and Power?

It is a total fantasy.

"Inflation is always and everywhere a monetary phenomenon," we are told. Almost everybody understands that when a currency loses value, it eventually takes more and more currency to buy things.

It works the other way as well. When a currency rises in value, it takes less and less currency to buy things. Let's call this process "monetary deflation."

This hardly ever happens. Inflation has natural temptations, but there is normally little political support for sustained deflation. Beginning in 1985 - with a bit of international arm-twisting known as the Plaza Accord - Japan experienced probably the longest and most dramatic monetary deflation (rising currency) in the last 500 years, if not all of human history.

This is obvious in foreign exchange rates. Beginning in late 1985, the yen soared above 250/dollar level that it traded in the early 1980s, eventually peaking at 80/dollar - a threefold increase - in 1995. Ouch. The yen's rise is more definitively described by the ratio of the yen to the eternal measure of value, which is gold.

This may puzzle some people. Wasn't the Japanese economy roaring into a bubble in the late 1980s? Indeed it was - driven in part by the 300 basis point decline in interest rates that resulted from the soaring yen. You can imagine the effects on the already-overheated property sector. Also, the government was engaging in a series of dramatic tax cuts, in line with the similar Reagan tax cuts in the U.S.

This, plus a healthy dose of irrational exuberance, was enough to keep the economy humming even though the CPI hovered around a negative 2.0% in 1987, 1988 and 1989 (when adjusted for an increase in the consumption tax).

However, once the asset bubble popped, the full effects of the monetary deflation were felt. The yen kept rising, eventually hitting a peak near 28,000/oz. of gold in 2000. This was about a seven-fold rise in the yen's value from its 1980 nadir near 200,000/oz., and a threefold rise from the mid-1985 value of about 90,000/oz.

I think it is fair to characterize the property market of the late 1980s as a "bubble" similar to the one we've experienced in the U.S., but it did not die naturally. No, the Japanese property market was pushed.

The government, aware of unsustainable asset valuations, embarked in a draconian series of steps to depress property prices throughout the 1990s. This not only blew away the froth of unsustainable valuations, it also demolished the real, fundamental value of property. They began with a series of tax measures on January 1, 1990 - the first day of the bear market - which eliminated certain preferential capital gains tax treatments for property. To take a few of a great many such steps which followed: In 1992, the tax rate on short-term capital gains (under 2 years) on property was raised to 90%. Long-term gains were taxed at 60%. A 0.3% National property tax was introduced (this was several multiples greater than existing property taxes). A City Planning Tax of 0.3%. A Registration and License Tax of 5% of the sale value of a property. A Real Estate Acquisition Tax of 4%. An Office Tax of 0.25%. A Land Ownership Tax of 1.4%. Even the regular property tax, the Fixed Assets Tax, was effectively raised by several multiples. From 1990 to 1996, Japanese property values imploded by as much as 70%. However, the revenues from this tax rose by 46%. You can do the math.

All of this resulted in epic levels of bad debts at banks. For some reason, the banks managed to get the blame for this, as if they were responsible for the unprecedented monetary deflation during the decade, or the tax assault on property owners.

Banks wrote off and liquidated loans continuously during the decade. However, the economy was unable to improve due primarily to the hideous monetary deflation, so more bad debts kept piling up as one borrower after another reached the end of their resources. This gave the appearance that the banks "weren't doing anything about their bad debts." As fast as they bailed out their boat, new water was coming in.

In 2000, the government, still convinced that banks "weren't doing anything about their bad debts," undertook an extensive audit of bank assets on a loan-by-loan basis. They wanted to determine if there were any "hidden bad debts," borrowers that had effectively gone bust but were being carried as performing loans. Then, having dug all the skeletons out of the closet to their satisfaction, they mandated that the banks resolve all these bad debts over the course of the next few years. Banks were required to state their progress under this plan in their financial statements.

Thus, we can see with great precision what banks were up to. As of September 30, 2000, Sumitomo Mitsui Financial Group had "bankrupt and quasi-bankrupt assets" of 653 billion yen. These were the real bad loans - those that had defaulted. There were another 2,594 billion of "doubtful assets" - these were loans that were paid in full, but where the borrower was in some difficulty (a large cohort after 10 years of recession).

By March 31, 2003, SMFG had reduced this original group of "bankrupt and quasi-bankrupt assets" to 144.5 billion, a decline of 78%. Problem solved? As of March 31, 2003, the bank had 524.9 billion of "bankrupt and quasi-bankrupt assets," with the difference made up not by leftovers from a decade earlier, but the brand new bad debts caused by the recession of 2001-2002.

Banks were doing more-or-less what they should have been doing. The government, far from "doing nothing" about the problem, was actually carpet-bombing the economy with the most destructive sorts of new taxes, on top of the horrible monetary deflation that persisted until about 2003.

The Bank of Japan eventually figured out the problem and implemented its "ryoteki kanwa" plan, which was translated into English as "quantitative easing." With the decline of the yen beyond its 10- and 20- year moving averages, monetary deflation was not a problem in Japan after 2003. Finally free of the crushing monetary deflation, the economy managed a modest rebound. Yet, the economy has been strangely moribund, even taking into account the difficulties happening worldwide since 2007.

Is the government still "doing nothing?" Hardly. The Japanese government's tax barrage continues to this day. Already there is an annual rise in payroll taxes, scheduled for every year between 2004 and 2017, which will eventually take the payroll tax rate from 13.6% to 18.3%. (Employers match this, and there is no maximum income to which it applies.) And what about the increase in taxes on dividends from 10% to 20%? Or the introduction of a brand-new capital gains tax on equities of 20%, which had effectively been tax-free before? Or the effective 25% increase in personal income taxes, the result of the elimination of a 20% tax cut introduced in 1998? On top of all that, politicians are talking about increasing the consumption tax (similar to a sales tax) from 5% presently to 10% or higher. Until a 3% consumption tax was introduced in 1989, there was no consumption tax at all in Japan, not even at the prefectural or municipal level.

This performance is spookily similar to the policies of both Herbert Hoover and Franklin Roosevelt, both of whom raised taxes throughout the 1930s and squandered boatloads of money on public works and other such spending "stimulus," with little long-term effect.

There is certainly a lesson to be learned from Japan, but it is not the one that most people think. The lesson is: keep your money stable, and taxes low. When Japan was on the gold standard in the 1950s and 1960s, and reduced taxes steadily, it was the growth wonder of the world.

Regards,

Nathan Lewis
for The Daily Reckoning Australia

• Debt Backed Securities Face Deepening Trouble
• Debt to GDP Ratio Will Return to Normal
• Hyperinflation and the Dollar’s Monetary Destiny
• Hiding Level Three Assets Won’t Solve the Problem
• Citizens Easily Coerced into Using Government Currency

Of course feelings aren't the most important thing in an economy. True, the "animal spirits" Keynes wrote about have to be out and about in an economy on the move. But facts matter too. And how you feel about the facts doesn't change what they are.

Take the National Australia Bank. Yesterday the bank told investors its bad debt charges in the first half of the year had doubled to $1.8 billion. That bad debt charge was more than double the charge for the same period the year before. Your perception of the charge doesn't matter. It is what it is.

The good news for NAB is that its Australian operations account for two-thirds of its profit. The bad news is that it may face more losses from its U.S. and European investments. It won't be alone if that happens, of course. But we're just saying that there are probably a lot more loan losses ahead for global banks this year and next.

That said, at least NAB is not the Bank of America (NYSE:BOA). BOA may need as much as US$70 billion in capital to plug what regulators are calling its "capital hole." The results of the U.S. government's stress tests of 19 big banks aren't public yet. But the Wall Street Journal quoted "people close to the company" who said that the Feds have told BOA it needs a bigger cushion against future losses. Whether that means more asset sales or diluting existing shareholders with new equity we don't yet know.

Where would the losses come from? Probably commercial real estate and, yet again, residential housing. We know you're probably sick of hearing about it. But we just want to remind you that neither the banks nor the financial system are done taking the losses on the great property and housing binge of the last decade. The binge was huge. But the purge is coming.

Trying to prevent the economic gag reflex from kicking in is the U.S. Federal Reserve. The Fed meets on Wednesday and maybe they'll do something worthwhile. Or maybe not. The Fed will be paying attention to the yields on government bonds. It's been buying those bonds (or announcing its plans to do so) in an effort to bring down mortgage rates and other borrowing rates that are pegged to official yields.

But the bond market is not cooperating perfectly. When it's cooperating at all, it's doing so with maximum resistance. Ten-year yields on U.S. notes were back up over 3% in New York trading yesterday. We'll see if the bond vigilantes have it in them to push the Fed on this. Rising ten-year yields will eventually push up mortgage rates, nullifying the Fed's efforts to boost the housing market.

The trouble is, there's just so much debt out there with more coming each day. The Treasury announced yesterday it would borrow US$361 billion in the second quarter. That's double what it estimated it would need just three months ago. And usually the Treasury doesn't have to borrow much in the April quarter because that's when Americans pay taxes. For example, it borrowed just $15 billion the same time last year (did we just write 'just $15 billion'?).

But the Fed needs $200 billion for its Supplementary Financing Program (to save the housing market). So the Treasury will be tapping the market for mo' money. The previous record for borrowing in the April quarter was $60 billion. Treasury borrowed $481 billion in the January quarter and expects to borrow $515 billion in the July quarter.

One small piece of data worth watching is the quarterly refunding statement that the Treasury releases on Wednesday in the U.S. This refers to maturing debt which has to be refinanced, as opposed to the new debt issuance mentioned above. It matters because of the marketable U.S. debt outstanding, an increasing percentage of the total is composed of shorter-maturity bills and notes rather than 20-year or 30-year bonds. This is an example of the compression of time and expectations we wrote about yesterday, where inflation discourages long-term planning and investing).

It also makes rolling over U.S. debt an extremely interest rate sensitive exercise, which is why the Fed will be watching bond yields like a hawk (pardon the pun). If you wanted a gratuitous prediction, we'd say the Fed is going to have to step up its buying of Treasuries in the open market (continue monetising the debt) in order to keep rates low. It also has to placate larger creditors to the U.S. who are eager to unload their large holdings of U.S. debt on the Fed before that debt is devalued by more money printing (China).

What a weird status quo. On the one hand, it's obvious, based on the government's own stress tests (or at least the leaked results) that there are billions in loan losses ahead which must be offset by new capital raised from private investors. Private investors and sovereign wealth funds can choose to recapitalise banks...or loan money to cash-strapped governments in the U.K., the U.S. and elsewhere (there are big 'capital holes' in national government budgets as well). Or they can stockpile commodities and cash and gold.

So which will come first, a huge new wave of deflating credit-backed assets, or a huge new surge in quantitative easing measures that keeps rates down and asset prices from crashing but drives up the price of real goods? It's pretty tough to say today.

Before we move on, thanks to everyone who signed up for our Twitter feed. You can still do so at http://twitter.com/draus. As we suspected, it's about as superficial and meaningless as modern communication gets. But if you're one of those people who has always craved/begged/pleaded for a shorter version of the Daily Reckoning, this is it! Twitter updates can't be any longer than 150 characters. This is forcing us into a haiku-style of financial reporting.

Or, if you prefer just a weekly summary of the week's biggest DR stories, keep an eye on your inbox this weekend. An Elwood-based DR reader with a Diploma in Applied Finance and Investment from the Financial Services Institute of Australia has volunteered to put together a weekly digest. He thought it would be just the sort of time-saving piece that would fit with his busy schedule. So for the last month we've been testing the publication in-house. We'll do it live this weekend on a trial basis and you can let us know what you think. It's designed for those readers who want an edited summary of the week's big stories all in one place.

Did you see the note about Antarctica in today's Australian? In case you missed it, the sea ice around Antarctica is expanding, not contracting. "A study released last week by the British Antarctic Survey concluded that sea ice around Antarctica had been increasing at a rate of 100,000sqkm a decade since the 1970s. While the Antarctic Peninsula, which includes the Wilkins ice shelf and other parts of West Antarctica were experiencing warmer temperatures, ice had expanded in East Antarctica, which is four times the size of West Antarctica."

Finally, check out the chart below from U.S. Goldcorp. Remember last week we mentioned that the world of government issued paper not backed by gold has been expanding in ever-widening circles for the last 100 years? The chart below shows just that, like a tide of paper money flowing into the world's real economy leading to bubbles. And then the tide turns, leading to asset price crashes and soaring prices for precious metals as the bad investments from the boom are liquidated.

The chart specifically shows the Dow vs. Gold ratio going all the way back to the 19th century. What you can see is that large credit expansions lead to a high Dow/Gold ratio. The value of stocks relative to gold soars as all the funny money in the economy translates into new corporate earnings and inflated expectations of future corporate earnings (much higher P/E ratios).

The disarming thing about this chart is that it doesn't look that far between a ratio of nine ounces to one and one to one. Oh, but it is. A one to one Dow/Gold ratio means Dow 5,000 and gold $5,000, or Dow 6,000 and gold $6,000. It's also worth thinking about the extremes. Dow 4,000 and gold $4,000 is huge move for gold and a crash in the Dow. You could see this happening with another capital crisis in the financial sector.

But it's also possible that the Fed and other central banks can pursue unorthodox policy measures like purchasing stocks with freshly printed money. This would support stock markets nominally, although in inflation adjusted terms it would be a bogus number. But psychologically, gold $9,000 might not be as startling if the Dow were at say, 18,000.

Yes yes. That sounds absurd. But we live in absurd world. People trade real goods which have tangible value for perfectly worthless pieces of paper. Anything is possible.

Dan Denning
for The Daily Reckoning Australia

• Central Bankers Encourage Debt Booms That Become Debt Bombs
• Dr. Woody Bock’s Essay: The Future Evolution of the Debt-to-GDP Ratio
• Government Sponsored Enterprise Debt and Australian Banks, a Ticking Time Bomb?
• U.S. Trying to Auction Off $162 Billion in Debt
• U.S. Government Must Roll Over $3.4 Trillion in Debt Over Next Four Years

By the end of 2008, $30-$40 trillion had been lost, in stocks, housing and derivatives. Investors breathed a sigh of relief when December 31 finally came. But then came 2009! World markets have fallen 18% so far this year...2009 is on track to lose far more than even 2008, which was the worst year in stock market history.

What has gone wrong?

Today, we're going to retrace our steps. In order to understand where we're going, we have to spend a minute remembering where we've come from.

First, the biggest bubble in history sprang a major leak in the summer of '07. Then came the autumn of 2008, and it was losing air from every seam. The biggest bubble in history might be expected to lead to the biggest bust in history. And so it has...

"Let it burn itself out," was our advice. Instead, the feds sounded the alarm, slid down the pole, and rushed to put the fire out. But the more money and credit they pumped on the flames, the worse the fire seemed to get.

The Federal Reserve, under the leadership of Ben Bernanke, called out all the fire trucks and opened up all the hoses. Rates were cut to zero...and the Fed expanded its balance sheet - increasing the amount of credit available to the banking system - by nearly $1 trillion.

And the Federal government - under the leadership of George W. Bush - rushed out a tax rebate...and then a rescue bill. Together, they cost a bit more than $1 trillion.

None of this rescuing has done any good. Every bank and business that has gotten help has deteriorated, as near as we can tell. The feds let Lehman go bust and we were done with it. But they saved insurance giant, AIG. Now, AIG is in trouble again. And today's paper tells us that the feds have stepped in...this time to put in a further $30 billion and "take a controlling stake in two of the stricken insurer's largest divisions."

Hey...so now the feds are in the insurance business too.

And here comes the new administration with another $825 billion bailout and the kind of budget that takes our breath away.

If Mr. Obama gets his way, he will soak the rich and squeeze the military; everyone else will be showered with benefits. There's a health care initiative, for example, that will cost more than $600 billion. And there's even a plan to provide higher education for everyone.

Republicans are gearing up for a fight. They owe many of their careers to military contractors and are looking forward to cushy jobs with defense businesses should the voters ever catch on and boot them out of office. They'll fight to keep the U.S. spending money as if we were at war. The Republicans don't appreciate it much either when people on their high-dollar-donor lists are hit with higher taxes.

Democrats are readying for a dust-up too. They've dreamed of moments like this - it is as if the police and the alarm companies had all gone on strike at the same time. They're planning to rob every bank in town - and expect to get thanked for it. It is not often that they can divvy up trillions in boondoggles...and pretend it is in the national interest.

With this worldwide financial meltdown you can get away with anything. People have come to believe things so absurd you'd think even a Democrat would laugh at them. Most think you can give money to failing companies...and somehow they'll be healthy businesses again. Some believe that you can print up paper money - and that it will be as good as the real thing. Almost all of them think spending money on anything, no matter how stupid, actually helps the economy. If it were only that easy!

Obama says he's preparing for a fight too. Which is fine with us; we like a good fight. Even one that is rigged. And this one surely is. Just look a chart of government spending over the last 30 years. What you see is that there is nothing extraordinary about what Obama is doing. Every year, through Republican and Democratic administrations...from Ronald Reagan to Barack Obama...the Republicans and Democrats pretended to fight about how much money the government spent. And every year the trend continued: higher spending, higher deficits. It didn't seem to matter who was president, or what was going on. Each year, spending rose...and so did the real deficits. That too is a feature of the post-war consumer economy. And that, too, is probably coming to an end.

*** After all this fire fighting...you might think that the blaze would be under control by now. Not at all.

On Friday, the Dow lost a further 119 points. It's clearly ready for a rally...but there is none in sight - yet.

Oil is at $44. Gold lost ground too...it's down to $942.

We recall that last December, as stock prices were collapsing, Warren Buffett stepped up and put his money and his mouth in the same place. He was buying stocks, he said.

But buying stocks proved a bad place for both his money and his mouth. Stocks continued falling. And so did the economy that is supposed to support them. Economic output in the United States is falling at a 6.5% rate - the fastest drop in 26 years. And now Buffett says the economy will be a "shambles" this year. His own company, Berkshire Hathaway, reported profits down 96% from the year before...and is trading at only about half its peak. In other words, Berkshire shareholders have lost half their money.

And here's a good question for you, dear reader: If the smartest investor in the world can't make money in this market, how do you expect to?

If we were you, we wouldn't even try. You see, this is not a recession...and it's not a buying opportunity. It's a depression. And at this stage in a depression, the best thing to do is to sell stocks, not buy them. Because they have further to fall...and because they could take a long, long time to recover.

We've explained the difference between a recession and a depression before. But we'll do it again. A recession is a pause in an otherwise healthy, growing economy. A depression is when the economy drops dead. And when it drops dead, the assets that people owned - stocks, bonds, houses, derivatives, debt - are called into question. What are they worth, now that the economy that created them no longer exists? That's the big question. The U.S. economy has been expanding for the last 60 years - largely by increasing consumer spending and debt. Now, neither consumer spending nor debt is increasing. In the last 6 months, consumers have suddenly reversed their free-spending ways. Borrowers and lenders have repented too. But if it is no longer an economy that grows by increasing consumption and debt...how does it grow at all? And what about all those businesses that are set up to provide products and services to the consumer economy? A nd what about all the debts and obligations that the consumer economy produced; what are they worth?

That's what everyone wants to know. So the markets have entered into a period of vigorous price discovery. Some things are still valuable, of course. A house, for example. But many things aren't as valuable as they used to be. The house won't be worth as much if people can't borrow to buy it...or if potential buyers can't get a job. And the mortgage debt that the house carried...which was recycled into a leveraged debt instrument...is bound to be worth a lot less than people once thought.

But it takes time to sort out the good assets from the bad ones. How much does the business owe? To whom? Who owes it money? Will the debtor be able to pay? And what about those strange piece of paper - CDOs, MBOs, SIVs - in the company vault? What are they worth?

For a while, people are so afraid of making the wrong move that markets freeze up. No one wants to lend when he doesn't know if he's going to get his money back. That's called a 'credit crunch.' And no one wants to buy when he has no idea what things are worth. That's when markets go "no bid."

But eventually - unless the feds stop the process - things sort themselves out. Businesses go broke. Homeowners are defenestrated. Automobiles go back to the dealers' lots. Prices sink to a level where people are able to buy. And the whole process starts over again.

This can take a long, long time...especially when government is trying to stop it.

*** "We must kill zombie banks or face a lost American decade," says James Baker, U.S. Treasury Secretary under Ronald Reagan and U.S. Secretary of State under George Bush I. Japan is still trying to adjust to the realities of its post-bubble world...after the initial crash 19 years ago. It propped up banks instead of fixing them, he says. The banks were kept alive...but not performing their function. Result: a lost decade. Maybe two.

In the United States, in the '30s, on the other hand, the zombie banks were allowed to die. More than 1,000 banks were buried. Still, the economy didn't really recover until after WWII - some 2 decades after the crash of '29.

Maybe killing the zombie banks isn't enough. Zombie companies must be allowed to fail, too. And zombie homeowners. And all the zombie investments made in the preceding bubble years.

Of course, that is what is needed. A period of creative destruction. But in this period of discovery, we don't know who's a zombie and who's not. Not yet. It will take time to find out. A new economic model must take shape. Then, the markets must tell us what things are still valuable...and what they are worth.

An example: a mall. Shopping malls were designed for an economy in which consumption increased at a more-or-less predictable rate. As consumption increased, mall owners could project how much retail space they could let out...and what yield it would produce. Based on those figures, banks could lend against the value of the mall...and investors could put their money to work building new malls.

But that economy is missing and presumed dead. Consumption is no longer increasing, it's declining. And the biggest consuming group - the baby boomers - seem to be changing their habits forever. From here on out, they are likely to be saving money for their retirements...not spending.

What is that mall worth now? What do the projections show? The commercial property loans used to build the mall were based on projections made years ago; what are those loans worth now?

We're all waiting to find out. A new economy needs to arise, step over the corpse of the dead one, and get moving. What kind of economy? We don't know... When will it happen? We don't know that either. What companies will prosper...which ones will fail?

We wish we could tell you.

In the meantime, all we have is guesses... Stay tuned for more...tomorrow.

Regards,

Bill Bonner
for The Daily Reckoning Australia

• Fight Fire with Fire!
• A Dispatch from the Zombie Wars
• Broad Money Supply Declines by $50B in US, Fire Up the Printing Presses
• Ford Chief Doubts a Return to Old Times
• Feds’ Plan is to Reflate the Economy

The RBA wouldn't have been that fussed about the action in the stock market yesterday. It's got its eye on the Australian economy. The new cash rate of 4.25% is the lowest in seven years. And it could go lower. In its statement on monetary policy, the Bank said inflation wouldn't be much of a worry in 2009.

"Financial market sentiment remains fragile," Governor Glenn Stevens wrote, "as evidence accumulates of weak economic conditions in the major countries and a significant slowing in many emerging countries. Commodity prices have fallen further. This, combined with the likelihood of below-trend growth in the global economy, suggests that global inflation will moderate significantly in 2009."

If the RBA over-cooked things to the tight side in raising rates through 2007, you get the feeling they are making the same mistake on the loose side, and that it will lead to an unwelcome and massive rise in inflation in 2009, probably after the middle of the year. Central banks, like markets, tend to overshoot first and ask questions later. But please don't confuse Mr. Stevens with the head of catering on the Death Star.

Australian monetary policy is now in an "expansionary setting" according to the RBA's statement. Picture if you will, rolling hills at sunset, with fields of lush, deep, dark green grass. Row after row of trees line the horizon, heavily laden with green and gold notes. This, we suppose, is what an "expansionary setting" for monetary policy might look like.

But it's not as if the money is just there for the taking, is it? Homeowners with fixed rate loans must choose to refinance. And they have to get a loan from the bank. And we're not so sure the banks are going to sign off on big loans in 2009. You've already seen the hard ball the banks are playing with the miners.

Now there's this in today's Age, "ANZ has raised doubts about passing on further cash-rate cuts in full after warning that wholesale funding costs are likely to remain inflated in the medium term." ANZ and Westpac went ahead and passed on most of the RBA rate cut, but not all of it. And it raises an interesting problem.

For ANZ, there are two prices for money. There is the price it pays to borrow money in the "wholesale" market. This is the global capital market. And despite the laxative efforts of the Fed, global capital is not exactly free-flowing at the moment. That means ANZ continues to pay more to borrow globally than it is used to.

The second price of money is what you pay for it. ANZ has lowered that price. But you can see that if it's wholesale price of funds remains "elevated" that it faces a simple choice. It can pass on the full rate cut to consumers, continue to pay the wholesale price of funds, and take the hit on its profit margins as the spread widens. Or it can stiff the consumer and keep margins high. What do you think it will do?

Here we come back to a point made a few weeks ago, that successful businesses must, in the long-run, be run for the benefit of customers and not, say, the employees. The investment banking model admittedly challenged this thesis.

Investment banks existed primarily for the benefit of investment bankers, who hopefully, on the side, did a decent job of getting capital from the people that had it (the capitalists) to the people that could put it to its most productive use (entrepreneurs).

Somewhere along the way, the capital itself got hijacked by the investment bankers and money shufflers. They had a big party. And in the process, a whole generation of savings has gone down the economic toilet. Capital is now becoming scarcer and more expensive.

Also, we say "savings," but really the money lost is destroyed. You can't make up for that by creating new money. All this new spending is borrowed from future generations, who must now pay back the trillions of U.S. bonds sold to foreigners in order to finance Wall Street's capital destruction. It's a tax on the future and the unborn, and in moral terms, it's deeply disturbing.

But back to business. It turns out, then, that the interests of investment banks (and to some extent, retail banks) were not at all aligned with customers (or shareholders). Now, the banks are paying the price. And in a world where no one bank had a monopoly on printing money, these banks would be put out of business by sounder guardians of the currency. Competition for sound money would expose the counterfeiters.

But wait. Isn't the Fed a private bank? Why yes. Yes it is. And you can be sure the Fed is looking out for the interests of its member banks. In fact, according to Bloomberg, the Fed has just extended three of its lending programs designed to "ease credit conditions."

"The Federal Reserve extended the term of three emergency-loan programs to April 30 from January 30, aligning their expiration dates with other central bank efforts to mitigate the credit crisis. The Primary Dealer Credit Facility and Term Securities Lending Facility, created in March, and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, begun in September, were lengthened in light of continuing strains in financial markets."

This is what we meant by the development of a modern kind of feudalism. Indicted on the stage of history for gross mismanagement of paper money, the central banks know that ordinary people are losing confidence in their product (paper money). Once the illusion of paper money is shattered, confidence goes too. It never recovers.

That's why the banksters are trying so hard to keep people from asking serious questions about the nature of our monetary system. They want you to go about your business, stay forever in debt, and send them interest payments for the rest of your life like a cubicle farm serf. That's no way to spend a life! More on life tomorrow.

Dan Denning
for The Daily Reckoning Australia

• RBA Rate Cut Does Little to Unlock Credit Market
• Government Stimulus Programs Make Life Harder For Banks
• 1% Aussie Interest Rate Cut?
• Fed Now the Middle Man in Interbank Lending Market
• World Economy Faces Hyperinflation or Deflation?

“Decline is biggest since ’80; data show a shrinking GDP.”

Well...what did they expect?

We are in an especially cheerful mood here at the Paris headquarters of The Daily Reckoning. Why? Because everything is happening as it should. God is in his Heaven. The Queen is on her throne. And the Big Boom is turning into a Big Bust.

As predicted in this space, many times, consumer spending is falling hard. But what else could it do?

Let’s look back over our shoulder to see how we got to this place.

The feds goosed up the slumping economy in 2002 with history-making inputs of new cash and extra-easy credit. What followed was an once-in-a-lifetime bubble in housing...which lifted up the entire world economy. Americans bought things they couldn’t really afford with money they didn’t really have. And the whole world rejoiced.

But when housing prices got so far out of whack that the average person couldn’t dream of buying the average house, something had to give.

Housing began to fall...taking the mortgage-backed speculative finance business down with it.

At first, few people took it serious; so it took a long time for homeowners to react. But they had to cut spending sooner or later.

In an economy that is nearly 80% based on consumer spending, less spending is bound to cause a recession.

And when businesses take in less revenue, their stock prices are sure to fall.

All that has happened, just like it should.

But what should happen next?

First, we should begin to see some shocking unemployment numbers. It takes time to prune payrolls, but we should be seeing the deadwood on the ground very soon. And then some green wood. Good, young employees will be cut along with the baby boomers.

A new hotel opening in Las Vegas put out a call for employees. It got 67,000 applicants for 500 jobs. And American Express said yesterday that it will cut 7,000 employees.

Unemployment is officially at about 6% now. It will pass 10%...and keep going up.

Then, we will begin to see a big increase in bankruptcies, defaults, and foreclosure. Even after layoffs and cutbacks, businesses will be unable to pay their bills. Laid-off workers will find it tough to find new jobs; they will declare bankruptcy too. Corporate bonds will become worthless. Billions in automobile and credit card debt – along with mortgage debt – will become uncollectible.

What else will happen?

Globalization will walk backwards. This time, there will be no need for Misters Smoot and Hawley. Mr. Market will do their work for them. Global trade will collapse as the consumers of first and last resort – Americans – stop spending.

We’ve already seen this happening in the capital equipment area. Volvo got orders for 41,970 of its big trucks in the 3rd quarter of 2007. In the 3rd quarter of 2008, meanwhile, Volvo got a total of 155 orders.

As Mark Gilbert reports at Bloomberg, if no one buys trucks, you don’t have to ship trucks. Shipping rates are collapsing too. Now it barely costs 10% as much to ship a truck as it did at the beginning of the year.

It’s a “descent into Hell,” says Michael Bloomberg himself, describing what waits for the next U.S. president.

*** So, you see, dear reader, what MUST happen DOES happen. Sometime it takes longer than you expect. And often it doesn’t happen exactly the way you expect. But it is a relief to know that gravity still works...what goes up still comes down. ‘Regression to the mean’ is another old law still in force; when things become extraordinary, you can bet they will go back to normal sooner or later.

But what does this mean for stocks? And what about gold? The dollar?

Hey, you’re asking a lot from a free publication. But what the heck...we’ll make some guesses and remind the reader that he is likely to get no more than he paid for:

Stocks typically regress to the mean, along with everything else. The ‘mean,’ depending on how you measure it, would put the Dow between 6,000 and 9,000. But Mr. Market is can be a devilish fellow. He usually causes stock prices to regress beyond the mean, before he lets go of them. This could take the Dow down to 5,000...perhaps to 3,000...before it finally reaches a bottom.

And before we make guesses about gold and the dollar, we will tell you another thing that MUST happen.

Fish gotta swim. Birds gotta fly. And the feds gotta try to pump more liquidity into the system. All over the world, government officials are taking command of the situation. Well, they are taking command of banks...of trillions of dollars worth of bailout funds...interest rates...and financial rules.

Yesterday, for example, Japan announced that it would spend 5 trillion yen, about $273 billion, in a “stimulus” package. Also, the Bank of Japan told the world that it, too, was cutting rates. This news came as a surprise to us. We didn’t think Japan had any rates left to cut. But the BOJ nevertheless announced that it would shave the short stump of its main rate down to 0.3% and that henceforth it would make commercial loans at 0.5%.

By contrast, the U.S. Fed still has 100 basis points to work with. And the U.S. Congress is said to be planning another stimulus package of its own – surely wrapped in bright Christmas paper. The price tag might be another $400 billion, according to our sources.

Not only are the feds trying to bail out the U.S. economy, they’re also lending $120 billion to a group of foreign countries in order to help them swap their currencies for dollars. At least, that’s what it says in the paper...the actual transaction is a mystery to us.

The Russians are bailing out their own rich people. At least they’ve got some real money to work with – a fund of $200 billion. And the IMF has pledged to lend $100 billion to wherever it is needed.

You can also count on more rate cuts...trillion-dollar deficits...show trials...giveaways...and grandstanding. There will no doubt also be a “jubilee” movement – demanding forgiveness of debt.

The big questions are when and how will these things affect the feds’ ability to borrow? We don’t know the answer...but we have watched Treasury yields rising ominously over the last few days. That could be a sign that the worst is over for the economy. Or, it could be a sign that lenders are worried about US public finances.

If the world economy continues to weaken...and turns into the FWD (First World Depression), as we think it will...none of these measures will do any good. Finally, the U.S. government will run out of credit, out of money, out of time, and out of luck.

Then, the Bank of Ben Bernanke will do what it has promised to do: it will print money. And when that happens...or even when investors begin to suspect that it might happen...the dollar will collapse and gold will rise.

*** “Here’s my question,” begins a Dear Reader. “If in any business deal someone loses or spends money and then someone makes money on the other end of the deal, my question is where did all of the money go? Who is holding on to it? Why? I don’t understand the concept of a global recession. Please help. Thanks.”

*** Another reader answers the question:

“I feel terrible. I feel like this thing has taken 10 years off my life. I took your advice. I think. I put half my assets in cash and gold. Okay...gold went down, but not catastrophically, so I’m okay there. But the other half, I put into stocks. Not US stocks. I bought India and Japan and some other foreign markets that I believe you had mentioned. Maybe over the very long run, those stocks will prove to be good buys. I don’t know. But I’m down about 50% in those investments...meaning, I’ve lost 25% of my wealth.

“Where did it go? It just disappeared. Nobody made any money on the other side of the trade. Because I didn’t sell. I held on, thinking that the bottom was in each time they went down. But they just continued to sink. I still have them. And now I’m afraid they could go down another 50%...but I’m so far down already I don’t care.

“I’m a big boy...I don’t mind the loss of money so much. But I can’t stop thinking that this money I made over the course of a 40-year career in business. It didn’t come from speculation. It’s not easy-come, easy-go money, in other words. Instead, it’s a quarter of the wealth I’ve accumulated over 4 decades of work. So, it’s as if an entire decade of my life had been lost.”

Bill Bonner
for The Daily Reckoning Australia

• AIG to Receive $85 Billion Loan from Fed
• Japan and its Economy Did Not Have Secret to Everlasting Success
• Deleveraging Will Give Us a Bout of ’30s-Style Deflation
• U.S. Economy is Still Growing but GDP Growth Rates Are Mostly Fraud
• Freddie and Fannie Hit Hard as Stock Falls to its Lowest Since 1995

The RBA rate cut WAS a full percentage point as we speculated yesterday. And it certainly did make a splash. Economists loved it. The critics praised it. And investors "huzzahed" the ASX 200 up nearly two percent on a day when the rest of the globe quaked in fear.

What has changed? The bank has shifted from being worried about inflation to being worried about recession. A credit crunch? Slowing global demand? Falling commodity prices? All those DO seem to add up to much slower growth.

"The recent deterioration in prospects for global growth," the RBA released in a statement, "together with much more difficult market conditions even for creditworthy borrowers, now present the risk that demand and output could be significantly weaker than earlier expected. Should that occur, inflation would most likely fall faster than earlier forecast."

But is the biggest RBA rate cut in 16 years more symbolic than anything? What will change in the real economy and the credit markets because of what the RBA has done? The big four banks did pass on a rate cut of 80 basis points to consumers. That's a win for the battlers.

Will the RBA rate cut unlock the interbank lending market, though? The RBA board said it took careful note of movements in funding costs in wholesale markets," and that, "an unusually large movement in the cash rate was appropriate in order to bring about a significant reduction in costs to borrowers." So credit is now cheaper. But is anyone selling? Banks might begin lending if they were sure it was safe to lend. But is it?

To the extent that Aussie banks fund domestic lending by borrowing from foreign banks, the lower rates don't help either. The cut DOES help reduce the cost of all that debt Aussie consumer are carrying (160% of disposable income according to Dr. Steve Keen). But it doesn't make the debt go away.

We made an error earlier this week when we said Australia had moved to guarantee bank deposits. That move has been made in the U.S. and Europe, but not yet in Australia. And according to Wayne Swan on Lateline last night, there's probably no need to do so, since Australian banks are well regulated and well capitalised. Hmmmm.

Dan Denning
The Daily Reckoning Australia

• Biggest Factor Affecting Consumer Price Inflation is Growth in Bank Credit
• RBA Declares ‘Victory’ Over Inflation in Australia
• It’s a Bear Market in Credit
• Aussie Banks Addicted to Foreign Borrowing
• RBA Buys $780 Million in Residential Mortgage-Backed Securities