Idiocy is usually described as "endlessly repeating the same process, hoping for a different result". Lawrence Summers, Timothy Geithner, Nancy Pelosi, Joe Biden et al are straining at the leash to get the Bailout Ball rolling once again. The stabilization of the financial sector, as elusive as it has been so far, has become the Holy Grail of Economic salvation. That makes $8.5 Trillion worth of trying and $0 of result. The Knights of the Oval Table are gathered to plan their mission as their beleaguered subjects are trying to batter down the castle gates. It's no small wonder that Geithner wants to get the money out the door as soon as the end of this week.

The most recent report from the Comptroller of the Currency seems to have gone unnoticed in Washington and the press. If banks are not lending because of increased capital requirements in the face of Credit Default Swaps, other derivatives and loan defaults, then the report goes a long way in describing exactly why.

In 2008 the credit crisis spread around the world like a virus. We saw individuals, companies and small countries go to the wall. Will 2009 be the year when U.S. creditors refuse to expose themselves to an ever increasing risk of default in order to protect their own economies? There are growing signs of hesitation and fear on behalf of those who would lend Uncle Sam the funds to finance yet another "stimulus" plan. No small wonder as the U.S. is flat broke and up to its eyes in unpaid debt as it is. With inflationary fears added to the mix as trillions of dollars emerge in to the U.S. economy over 2009 and trillions already thrown in to the bottomless pit of the financial sector, China and Japan are getting nervous.

Japan's utter panic was summed up by Akio Mikuni, President of the ratings company Mikuni & Co. when he suggested that "Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession." For good measure, "The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes drastic measures to help bail out the U.S. economy."

Treasury Secretary Henry Paulson blew it, Ben Bernanke blew it and now it looks like Lawrence Summers and David Axelrod, Obama's top economic advisers, are about to blow it big time. The horse is long since dead but the flogging continues.

"The focus isn't going to be on the needs of banks; it's going to be on the needs of the economy for credit," Lawrence Summers on "Face the Nation," on January 19th. In the same segment, both he and David Axelrod agree that Paulson's use of the first $350 Billion of the TARP money was a failure.

With the waves of destruction brought about by the Global Financial Meltdown there comes a defining moment of obligatory reflection. If such disaster has been visited upon the Globe, what lessons can be learned to dismantle the mechanism that brought it about in the first place? The remedies proposed by Governments the world over are not working, as every real economic indicator confirms. The eternal corrupting influence of Money on Government policies and planning have all but guaranteed that whatever methods are employed to redeem the economy from the whale’s mouth, they will be like drops of rain meeting a river. The one overwhelming factor that does not seem to be factored in to the equation is that to get oneself out of a financial mess one needs financial resources. Not the borrowed kind but the saved kind. This is where China holds an Ace.

The U.S. has a real financial shortfall of $53 Trillion which it can never pay back. The U.K. is on the way to destroying its currency and increase its debt, as is France. China, on the other hand, is in a very unique position in that it has $1.9 Trillion in foreign currency reserves. This puts it in a very unique position with regards to the rest of the world. While the latter was absorbed in consuming everything that China produced, the Chinese were amassing an enormous cushion of real cash that they can now use to divert the focus away from an export driven economy to one that begins to focus on domestic demand. The economic fundamentals for a recovery in China are more evident than in the rest of the world because there has not been the same credit driven overconsumption that was the driving force for GDP in so many other countries. Even on an individual basis “Household savings climbed 382.7 billion Yuan from the previous month (October 2008)."

As 2008 comes to an end after a brain curdling descent in to an economic abyss, what is on the to-do list for 2009? Will the same mistakes that were made to try and ease the impact of the crisis be repeated in 2008? All indications are that addressing the root problems is still not on the agenda and the predilection for Keynesian stimuli will only exacerbate the fallout from a fundamentally unwinnable war. Unwinnable in the sense that the definition of victory is the restoration of a failed Economic model.The injection of $3 Trillion in to commercial paper, mortgage, banking and auto markets has not even touched the onslaught of Economic Armageddon. The credit, so earnestly hoped for, never materialized as recapitalization outbid exposure in the financial world. There is a long, long way to go before the deleveraging Genie is put back in the bottle, and only then after a carnage never seen before in the history of the free market.

With the coming bankruptcy of General Motors (GM), there comes the specter of the $250 Billion in Credit Default Swaps written against it. The F.D.I.C. will be working overtime after this one. This will only tighten the noose around the credit market even more. Every component of an economy is dependent on the other for a productive environment, but when the dependency is wrapped up in an envelope of hugely leveraged bets on the viability of these components, the consequences of failure are multiplied beyond a sustainable level. This is the systemic failure that needs to be addressed above all others. There is no point in trying to reinvigorate an economy if you have not removed the cancer that made it ill in the first place. The Derivatives and securities markets must be opened up, dissected and written off.

The World Bank today released its long awaited forecast for the World economic future. "The financial crisis is likely to result in the most serious recession since the Great Depression," said Justin Lin, its Chief economist. The global economy is captured in a downward spiral as never witnessed before. Whereas before, economies were more localized and had more immunity to outside forces, now Globalization has ensured that one big failure in the machine can create a systemic event that brings down all the component parts. The inevitable failure of a few major banks has demonstrated just how much havoc can be wreaked from Alaska to Beijing.

Emerging markets, dependent on mature market consumption, are teetering on the edge of Bankruptcy as Private capital inflow has been drying up and is forecast to reduce by half next year. The volume of world trade is set to decrease by 2.1%, the biggest drop for 33 years. Oil exporting countries from Venezuela to Russia are seeing revenue crash as demand across the world decreases. Poor countries, on the other hand, have experienced a decrease in the cost of living as food and oil prices drop. In an unforeseen twist of fate, Globalization has enriched poorer countries and impoverished richer ones.

The announcement in the last few days of a deal reached between the U.S. Treasury and the moribund insurance giant, [[AIG]] provides a very lucid insight into the nefarious and destructive world of the Troubled Asset Relief Program, otherwise known as T.A.R.P. Not only has A.I.G. received $152 billion to date and subsequently reported a third quarter loss of $25 billion, now it is to be cleared of its obligation on $53 billion worth of toxic credit default swaps. U.S. taxpayers are now on the hook for $205 billion, courtesy of an institution which played in the Wall St. casino that passes for a "Financial Sector" and lost. Under the "Free market" system, so expounded upon by Government and Wall St. alike, A.I.G should be in chapter 11. Bailing out A.I.G and other failing institutions does absolutely nothing to address the fundamental issues at hand.

The economy is in crisis because unemployment and overarching debt levels pushed thousands of families in to the untenable situation where they did not earn enough to cover their debts. This burst the real estate bubble inflated by Alan Greenspan, crashed real estate prices, consumer spending and manufacturing. What we are seeing now is the inevitable result of lack of Financial regulation, lax monetary policy and a symbiosis between Government and the Financial industry. The mortgages taken out by buyers had been bundled into complex financial instruments - mortgage backed securities. The latter, along with credit default swaps and derivatives, set the stage for a global financial meltdown.

The New York Times reports that Mr. Obama has brewed up a plan to reverse the downward plunge of the U.S. economy. Public works, on a scale not seen since the construction of the Highway system under Dwight Eisenhower, will form the regenerative backbone of recovery. Hundreds of thousands of newly employed citizens will try to outdo each other in the race to replace the dreaded tungsten filament across the nation. Broadband Internet access will cover the U.S. like an angel's wings as every child, (yes none left behind), will experience an education in a newly refurbished, modern building that will be the envy of the current student population. Public buildings will have their heating systems redesigned for energy efficiency. Hospitals will become the new DARPA with high speed internet connections to share data and avoid duplication and resource wastage.

This actually sounds like a good plan. By attacking the traditional energy "devil may care" attitude, the nation would become less dependent on foreign oil as it would by developing new "Green" cars. A well educated, employed population working in an efficient manufacturing infrastructure would increase production and boost exports. But, the question needs to be asked. Where is he going to get the money ?

The New York Times reports that President-elect Obama has brewed up a plan to reverse the downward plunge of the U.S. economy. Public works, on a scale not seen since the construction of the highway system under Dwight Eisenhower, will form the regenerative backbone of recovery. Hundreds of thousands of newly employed citizens will try to outdo each other in the race to replace the dreaded tungsten filament across the nation. Broadband internet access will cover the U.S. like an angel's wings as every child (yes none left behind), will experience an education in a newly refurbished, modern building that will be the envy of the current student population. Public buildings will have their heating systems redesigned for energy efficiency. Hospitals will become the new DARPA with high speed internet connections to share data and avoid duplication and resource wastage.

This actually sounds like a good plan. By attacking the traditional energy "devil may care" attitude, the nation would become less dependent on foreign oil as it would by developing new "green" cars. A well-educated, employed population working in an efficient manufacturing infrastructure would increase production and boost exports. But, the question needs to be asked. Where is he going to get the money?

The announcement in the last few days of a deal reached between the U.S. Treasury and the moribund insurance giant A.I.G. (AIG) provides a very lucid insight in to the nefarious and destructive world of the Troubled Asset Relief Program, otherwise known as TARP.

Not only has A.I.G. received $152 billion to date and subsequently reported a third quarter loss of $25 billion, now they are to be cleared of their obligation on $53 billion worth of toxic credit default swaps. U.S. taxpayers are now on the hook for $205 billion courtesy of an institution which played in the Wall Street casino that passes for a "Financial sector" and lost.

The long awaited regulatory framework to rein in the Financial sector was announced Wednesday. Not surprisingly, it did not address the most important issues hovering over the economy and serves only to reinforce the hands off management style that has always been the trademark of this supposed Gatekeeper of Financial Sanity.

The new regulations, due to take effect in 60 days, only affect the ratings agencies; Standard & Poor's (MHP), Moody's Investors Service (MCO) and Fitch. These agencies are responsible for the issuance of ratings for public companies and securities, thus defining the ability of the former to raise credit and at what cost the latter will be purchased by banks, mutual funds, state pension funds or local governments. Stock prices and investor confidence take their cue from the big three and the effect on the market when ratings are graded higher or lower is enormous.

The Baltic Dry Index continues to lower as the demand for raw materials continues to drop to unseen levels.

Monday's handing over of yet more taxpayer money to Citigroup (C) has temporarily avoided a truly systemic breakdown of the world banking system but, as always, the real problems have not been addressed and the inevitable collapse has just been delayed.

Bloomberg reported Tuesday that:

With the ever increasing amount of taxpayer money handed over to "bail out" financial firms, manufacturing firms and Insurance firms, the Treasury has given a new meaning to the term "venture capital". Venture, by its very definition, involves risk for reward. But risk and reward for whom? All the risk for the U.S. taxpayer and all the reward for company CEOs and boards. Has any of the money stuffed in to the back pockets of the banking community actually done any good? For the economy, no. For the U.S. taxpayer (who is the real investor, as this whole thing involves their money), none. For the recipients themselves, yes. What have these institutions done with the free money? JPMorgan Chase (JPM) used some of it to buy Washington Mutual for $1.9 billion and Bear Sterns for $1.1 billion. Bank of America (BAC) bought Merrill Lynch for $50 billion. Talking about return on investment, Fannie Mae, even after receiving $100 billion, lost $29 billion in the third quarter. AIG Insurance (AIG), after having received $85 billion, followed by an extra $38 billion, lost $25 billion in the third quarter. And now we are witnessing even more money being proposed for even more "bailouts".

As a side note, after each new merger, the number of controlling banks reduces and the choice for the consumer is slashed. Competition is slowly being removed from the banking sector and we are witnessing the birth of a banking monopolization. It will come as no surprise that the cost of banking for the consumer will rise alongside.

Thursday heralded the long awaited release of figures compiled by the Depository Trust & Clearing Corporation ((DTCC)). The latter is controlled by banks, amongst which are JPMorgan (JPM) and Goldman Sachs (GS).

From their article: