According to this Reuters article, the Fed announced a new rescue package of $800 billion USD to lower the cost of home purchases, credit card and student loans.

Under the new mortgage program, the Fed will buy up to $100 billion of debt issued by government-sponsored mortgage enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

I guess everybody is as shocked at Paulson's change of heart...

Instead of the 3 pager proposal to request $700 billion, 1 page for the title, 1 for the thank you and goodbye, and 1 single page with the gravy of the plan, now, he doles out an "I'm not afraid to make changes if the facts change".

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I'm trying to make sense of this BIS September report, so, please bear with me and my ramblings.

Congrats to Paul Krugman on his Nobel prize. Now, this is his view of what's coming:

Just this week, we learned that retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep-recession levels, and the Philadelphia Fed’s manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish — and long.

If these securities are now downgraded, banks could be forced to offload lots of illiquid instruments into a falling market—one of the fastest ways to lose money yet devised. But if there are no buyers, banks may have to sell something else to shore up their balance sheets.

Undoubtedly, it's a hell of a good description of the markets' situation, it tells us what's happened in the recent couple of weeks. In short, there are no buyers for some highly leveraged and sophisticated credit instruments: CDOs, credit swaps, and the like.

• China Raises Bank Reserve Ratio for 6th Time in Year
• China's Trade Surplus Probably Doubled in March to $20 Billion

China Raises Bank Reserve Ratio for 6th Time in Year

China's Trade Surplus Probably Doubled in March to $20 Billion

Which after reading a few lines,

China's economy may grow as much as 11 percent in the first quarter

M2, China's broadest measure of money supply, grew 17.8 percent in February, the fastest pace in six months,

while outstanding loans climbed 17.2 percent.

New lending was 981 billion yuan for the first two months combined, almost a third of the total for all of 2006.

The trade surplus surged ninefold in February from a year earlier to $23.8 billion, the second-highest on record.

"If the yuan appreciation doesn't get faster, China's trade surplus will likely widen to $30 billion monthly in the second half of this year from an average of $20 billion currently,'' said Shen Minggao, an economist with Citigroup Inc. in Shanghai.

While China tries to meekly put the brakes on its economy, raising its reserves one more time:

In the past, even if spot commodity prices declined, there was an additional way that a commodity investor could have a positive statistical expectation of profit, and that was through the “roll yield” embedded in certain commodity futures contracts.

[...]

The labor arbitrage

I think that we can trace the root of the currents that move the world economy to the ongoing extreme labor arbitrage. Globalization has allowed millions of low wage workers to incorporate themselves to the world's labor pool, mainly from China and India. CBs in the US, EC and Japan have countered this effect by injecting liquidity to their economies to stimulate the perceived local lack of growth.