The government is finding very little support for its debt from foreigners and we surmise that the Fed has been a big buyer of Treasuries from offshore corporations in tax havens. The Fed’s fighting to make sure deflation doesn’t get a hold on the economy.

The Fed’s new TAF, Term Auction Facility, is a new liquidity facility that will auction loans to banks. The auctions are to legitimatize the process, instead of shoveling money out the discount window or out the back door. This is another scam to relieve the currency crisis. It allows the Fed to provide liquidity directly to a large number of financial institutions against a wide rate of collateral, some of it worth $0.10 versus its face value and accepted in full.

This move was to face down yearend term money pressure and Libor pressure. This is what the Fed did when Y2K arose. The currency swap arrangements with the BOE, SNB, ECB and BOC are intended to alleviate Libor and Euribor pressures. The Fed believes its mission has expanded beyond price stability and employment concern to ensuring that asset prices do not decline and speculators are kept in clover. They want to be all things to all people at all times. Better yet, the banks that participate in the liquidity auction will not be named. Of course, we must have secrecy. That is so the public and even the professionals won’t know who’s near insolvency. The scam also allows the Fed to secretly accept collateral that isn’t worth the powder to blow it out into next week. And, what does the Fed care, they create the money and credit out of thin air. It’s the dollar holders who pay the debt in higher inflation. Look what happened in 1989 when they flooded the system with liquidity, when the market tanked and all those aggregates came back to haunt them. They are doing it again and at the same time targeting intervention by S&P futures among others to manipulate the markets. They and the Bank of Japan are also using the yen carry trade as well.

No matter what the Fed and other central banks do the TAF does not address the major problem in credit markets, which is bank unwillingness to suspect entities. There is no trust or confidence left and it will take a long time to gain it back. The Fed and the US banks and investment banks screwed their fellow bankers and they are not going to let that happen again. There is no honor among thieves.

As this war among thieves rages, inflation is roaring higher The fall in the dollar is finally really showing up in import prices The fed will have to accept this inflation along with that created via M3, more money and credit, at a 17.5% rate and the, of course, the credit created via the discount window. Non-oil import prices rose by 0.7% after rising by 0.5% last month. As well, they have to keep lowering interest rates to extend the housing collapse out 3 to 7 years instead of 2-1/2 to 4 years. The economy is contracting and the financial situation is worsening.

              Morgan Stanley has issued a full recession alert for the US economy, warning of a sharp slowdown in business investment and a perfect storm for consumers as the real estate and credit collapses spread with no end in sight. As delinquencies and defaults soar, lenders are tightening credit by 60 to 80 PBS. High yield spreads have widened even more significantly. The absolute cost of borrowing is higher than in June. They are puling back on credit card, commercial, auto lending, as well as for mortgages. The foreclosure rate on residential mortgages have hit a 19-year high of 5.59%, while the glut of unsold properties will lead to a 40% crash in housing production says, Morgan Stanley.

The last time around construction fell 60% and today the situation is far worse. We see 60% to 75%. Those companies and affiliated industries make up 25% of GDP. We have very serious problems caused by the Fed, Wall Street, and banks, corporate America and our corrupt elected leaders.

Last week’s proposed mortgage bailout by Paulson of Treasury, will backfire by adding a risk premium that drives even more lenders out of the mortgage market. Believe us, Asia and Europe are totally incapable of saving the US economy.