And here is some more news about the US that should be putting people's teeth on edge....

Get into the bunker and make sure you have lots of supplies! And at the same time I am reading stories that based on Cheney's recent visit there, the Saudi's are starting to do nuclear fallout exercises.

Even South Korea, the bastion of support for all things American, is keeping out of the US this time around. According to the Financial Times one of the biggest pension funds there has declined to purchase more American debt:

This is exactly what happens in the classic downward spiral that is described in the article I blogged about below. This has got a long way to go before it fully plays out. And as the vortex grows it will start to pull in a lot more people, and cause a lot more pain. Witness the closing of Melbourne based stockbroker Opes Prime last Friday... I wonder how many people lost their shirts while just playing it straight.... ?

Here is a very easy to understand analysis of why the financial system is going to hell in a handbasket.

It is long so here is a snippet:

For example, a bank with an initial capital of $5 billion could support $100 billion in outstanding loans and investments, based on the requirement that its capital be at least 5 percent of the credit it has granted. But if its capital falls to $4 billion, it must reduce its outstanding loans and investments to $80 billion to be in compliance with that requirement. In other words, a $1 billion reduction in bank capital can cause a $20 billion reduction in outstanding bank credit.

Such announcements as that recently made by Citibank, that it would reduce its holdings of home loans by 20 percent, are entirely consistent with this phenomenon, as are the recent failures of banks and brokers to make bids in markets for so-called auction-rate notes. (These are credit instruments whose interest rates are set periodically on the basis of auctions and that until recently were billed as the equivalent of cash. Bidding for them would have placed banks at risk of acquiring additional assets and indebtedness when they urgently needed to reduce their assets and indebtedness.)

We are heading into very uncertain times. It may be hard to connect why the failure of Bear Stearns is important to the mere mortals who aren't huge investors, but it is. The entire financial world as we know it is teetering on a knife edge. Economic analysts and pundits have been either in denial or beating the gong about this period for several years.

As this commentator says, there are two worlds: the one that they tell you exists if you watch TV and the one that really does:

"Fascism is capitalism in decay." That's what he calls the problem in the article. If the shoe fits, wear it.

Then there is this story that talks about the imminent collapse of the dollar. It might be thought of as the ranting of some conspiracy theorist except it is the thoughts of one of the leading economists in the world, Peter Schiff.

The place that I am glad not to be in right now is the US. Here is what someone in Canada has to say. Its about the high food prices that are following right on the heels of the increased fuel prices.

And of course you have to also look at the timing of some stories too, don't you. Fallon resigns and Spitzer gets outed. Amazing how the trash story gets the headlines and the important story gets moved on and moved out. Could it be that there was a reason for that? This blogger thinks so.... and ok, he thinks that there is the hand of Mossad behind it... so what. It doesn't make me a conspiracy theorist for thinking that he may be right!

There seems to be an argument in the US about whether there is a recession or not.

Read this story in The Nation to get a sense of what is really happening in the US. Its about consumer confidence. We may be technically in a recession, but what we are really seeing is the beginning of a depression.

The fact is that when people are reading about other people having their houses repossessed and are seeing the price of consumer items like food and petrol going up to beyond their capacity to pay for those things as well as pay for the lease on the car they reach a point where they curl up into a ball and stop. That is what appears to be happening in America now. The media is ensuring that the ordinary man is demotivated to spend, while at the same time the Pres exhorts people to get more retail therapy and denies that there is a recession and pushes more tax breaks while spending more money on the military.

Is it any wonder that people are depressed or that there is a depression?

"Who is this guy Margin that keeps calling me?)

(hat tip to Calculated Risk)

Subprime was the trigger for an evolving tsunami, or so it seems. Now the big buzz word is Margin Lending.

It hit Eddie Groves, CEO of ABC Learning. It hit David Coe. And according to the Herald this morning it also hit Chris Murphy, the lawyer. And of course it has hit the banks too.

The banks being smart people and in control do what smart people who are in control do. They put up the interest rates for the poor battlers who were just trying to pay off their houses, while the smart people were doing very nicely borrowing against stocks that they didn't own to buy more stocks that they could sell before they had to pay for them. But when it went pear shaped, the high fliers lost the stocks. But the battlers are caught having to pay for the sharp lending practices of the banks to the high fliers.

There will be more pain without doubt. But the real pity of it is that the people who created and promoted the schemes just put the screws into the battlers to save their own asses and to find their way to hit their KPI's for the quarter/year.

And in the mean time the Fed puts up interest rates to try to restrain consumer spending in Australia.

Personally I think this is a bad idea. The impact of increased oil prices is just starting to hit people in their hip pockets at the supermarket, at the pharmacy, and at every level. What we need is a green tax. A green tax would reference any retail item that has carbon impact. It will be so onerous that people will get pulled up very short by it. It will be incredibly unpopular, but if it was levied on businesses first so that they have to increase their retail prices perhaps it will cause enough pain for the brands that they start to reduce the carbon impact that they have via their products...