Washington Gets It Right...For Tonight

"We simply cannot ask the American taxpayer to subsidize failure."
--Mitch McConnell, who did not follow the statement with, "And so we are abolishing the income tax."

As of this moment, the auto bailout isn't happening. It might be ugly out there tomorrow, but Tuna Melt thinks bankruptcy for GM & Chrysler now is far better than bankrputcy for GM & Chrylser next year after another 100 billion is down the tubes.

Of course, the big October bailout failed on the first go, only to go back to the House where it collected an additional 150 billion in pork on its way to passing.

I'll take the deflationary crisis

This guy is headed to the grocery store in Zimbabwe.

Teach A Parrot to Say Supply and Demand...

When will we reach the bottom?

Keynes (and Obama's team) would say, "when government has stimulated demand enough to match production output."
Tuna Melt says: When bad investment has been liquidated to the point that production has shrunk to match the new, lower level of demand.

Son of Taffy

Making its way around the blogs this weekend, a complete listing of the new bailout agencies.

* TARP: Troubled Asset Relief Program. This is the Treasury's big $700 billion ($850B including pork) program that has been used to prop up financial institutions.
* TAF: Term Auction Facility (or TAFfy). Program by which the Fed auctions funds to financial institutions — allowing them to use their toxic assets for collateral.
* TALF: Term Asset-Backed Lending Facility (or "son of Taffy"). Recently announced Fed program designed to help the market for student, auto and other consumer loans.
* CPFF: Commercial Paper Funding Facility. Buys commercial paper directly from corporations.
* AMLF: Asset-Backed Money Fund Lending Facility. Fed program designed to buy short-term paper (including commercial paper) to prevent money market funds from "breaking the buck."
* TSLF: Term Securities Lending Facility. Fed program that lets banks swap bad mortgage and other debt from their books in exchange for Treasuries.
* SLF: Special Lending Facilities. Originally designed to loan money to fund JPMorgan's purchase of Bear Stearns in March. Also used to back AIG's balance sheet to avoid total collapse.
* PDCF: Primary Dealer Credit Facility. This is the Fed program that allowed broker/dealers and other non-banks to tap the Fed's discount window (back when there were independent broker/dealers).

Making the Most of Our Current Reality

When the Tech bubble burst in 2000, the stock market lost almost as much as in this current mess (the NASDAQ lost more - it never recovered). Investors on the wrong end of that one were left wondering what was accomplished with all the money they handed over to the dotcoms.

Most of the money from the tech bubble was squandered, but one enduring legacy remains. The world was wired. Fiber optics cable was stretched around the globe. Large scale telecommuting, outsourcing office work to India, video on demand, iTunes, youtube, free wireless Internet at your coffeehouse -- all of this came about because in the 90s the world gave over so much of its money to tech companies.

Today's bubble has burst and left us with a glut of American housing and commercial real estate, so much in fact that the price of real estate is in spectacular freefall. Unlike the global fiber optics network, we can't make productive use of all this investment to a degree that we might justify all the madness.

Or can we?

Friends of the Tuna Melter know that some 12 years ago he worked for National Center For Policy Analysis (for one strange but enlightening summer). You think things are grim now, read NCPA's latest study. Tuna Melt's executive summary for you: in about 15 years, we'll be faced with either defaulting on government debt, or defaulting on government's social security and medicare promises.

Our economy is tanking precisely when we need its strongest growth. The demographics of this nation are such that we're soon headed for a time when more people are old and want to be done working than are young and eager to work. The entitlements monster in Washington is only getting hungrier, and we have fewer people feeding it. It's about to break loose and go on a feeding frenzy that will amount to the climactic finale of American prosperity.

Our choices are:
1) slay the monster by renegging on our Social Security and Medicare promises
2) find a new way to feed it.

#1 is the best, but trust me when I tell you with 100% certainty that it will never happen in the lives of you or your children. Entitlements aren't just a by-product of a democratic republic, they are the definition of a democratic republic. Nothing short of an armed, chaotic, bloody upheaval will end entitlements, and even anarchists like me would rather just pay the fucking taxes so we can play with our kids.
#2 might lay in the ruins of our tattered economy.

Cheap, abundant housing, everywhere you look. More houses than people to fill them......

What if America were to loosen up on immigration just a smidge? I know, I know - there are no jobs for immigrants to take. Just ponder it for now. More on this in future posts.

Friday Morning Melt

So, if Roubini was likely the winner of the last guessing game, what are his future predictions?

In the next few months, the flow of macroeconomic and earnings news will be much worse than expected. The credit crunch will get worse, with de­leveraging continuing as hedge funds and other leveraged players are forced to sell assets into illiquid and distressed markets, leading to further cascading falls in prices, other insolvent financial institutions going bust and a few emerging market economies entering a full-blown financial crisis.

also...

With governments and central banks bringing private sector losses on to their balance sheets, fiscal deficits will top $1,000bn for the US in the next two years. The Fed and the Treasury are taking a massive amount of credit risk, endangering the long-term solvency of the US government.

Full article here.

Also if you're in the mood to surf, check out Why Is Roubini's 401k All in Stocks?

Tuna Melt (who gives all the disclaimers about taking investment advise from Internet blowhards) also likes stocks as a long-term place to park one's butt. Treasuries and cash are instruments of government. Right now government is the only player whose stability seems a sure bet (after all, they get their revenue whether people want to pay it or not). But load a couple trillion in debt onto the government's balance sheet, and private companies starts to look much more stable in comparison.

Prediction Out the Tubes

Tuna Melt's predictions that government will grow astronomically as a result of this crisis: like, 100 for 100.

Tuna Melt's prediction that hyperinflation is coming: 0 for 1.

It's a good thing I only have about 4 readers, because I'm as clueless as anyone else. Tuna Melt now thinks that Roubini was right and deflation is here to stay for awhile. Despite the absurd amount of money being printed, it's not enough to overcome the extraordinary freefall of formerly inflated paper assets.

Even though I don't know what the hell I'm talking about, LVM and HB certainly do. The more I study what's happening out there and try to make sense of it, the more stunned I am at how prescient those blokes were.