Yes, the credit crunch is over, and the economy is not going into recession.

So said Kudlow last night.

Perhaps Kudlow would like to explain how roughly 20% of the United States economy, then, is going to have its underlying government instrumentality go bankrupt?

"While the state is more than $17 billion in the hole, Ingstad believes that figure will continue to rise. He also anticipates the state will be out of money by August. Bankruptcy for the state looms; a few counties and cities scattered around the state are close to declaring it or have arrived.

"The state treasurer is telling the state they will run out of cash this August if something isn't done. As a former member of a state Senate appropriations committee I know what that means. We could be bankrupt. They better stop the partisan games and deal with the crisis at hand," Ingstad said."

Well let me make a modest suggestion.

Stop funding education, hospitalization and social programs for illegal aliens who are paying no taxes and sponging off the government teat!

California has more of them than any other state and it is time for them to crack down on this crap. Moreover, those illegals are taking jobs that Americans will need as this economic dislocation continues onward.

By the way, I don't expect that Arnie will do that, or that such a plan would get through the California State House, say much less the State Senate.

That's fine. They can go bust. Just stay the hell out of municipal bonds.

Oh, if you are inclined to believe Kudlow, here's a nice quote from that article:

""Some experts are warning us this economy could last another two years," the CAO said. Others say it's the worst financial situation that's occurred since the Great Depression gripped the United States."

Those are people with adding machines. Kudlow doesn't own one.

The Fed is musing over the idea of keeping The TAF permanently and letting Wall Street investment banks continue to use it. Oh boy. Guess what one of their justifications is?

"Market functioning remains far from normal," Kohn said, pointing in particular to large spreads between overnight bank rates such as Libor and other short-term rates. Such large spreads indicate that markets still are in shock."

Why is the spread with LIBOR "not normal"? Perhaps this is the reason:

"Libor, the benchmark for 6 million U.S. mortgages and more than $350 trillion of derivatives and corporate bonds, has been called into question since the Bank for International Settlements said in March some lenders may have understated borrowing costs to keep from appearing like they are in financial straits."

Banks routinely misstated borrowing costs to the British Bankers' Association to avoid the perception they faced difficulty raising funds as credit markets seized up, said Tim Bond, a strategist at Barclays Capital.

In other words, they lied. Systematically, intentionally, and routinely.

The banks committed fraud on the instrument used to set rates and prices on $350 trillion (notional; there isn't really $350 trillion worth of assets around) worth of derivatives and corporate bonds, plus a sizable number of adjustable rate mortgages.

Of course nobody is calling for anyone to go to Bubba Prison, even though if you calculate the "vig" on $350 trillion dollars, assuming that the "intentional misquote" was as little as 10 basis points (1/10th of a percent) we are talking about $350 billion a year that some group of people got bilked out of, and some other group of people were unjustly enriched by.

That, by the way, is more than the total amount of the so-called "subprime losses" recognized so far.

So we have a financial fraud that has cost some participants $350 billion while making certain other ones that same $350 billion, and all we're talking about is whether or not we should "struggle" to keep that base rate tool around.

And The Fed's response to this is to ratify that fraud.

Mr. Fisher, are you reading this? Your buddy Kohn is prepared to facilitate the continuation of $350 billion in fraud annualized instead of forcing it into the open.

Last time I checked, that's fairly "in-line" with the amount of largess and waste that you were all over us in regards to government overspending, and you urged us to "vote the bums out", as it were.

Can we start with Kohn, Bernanke, and perhaps you?

The Fed, along with others, wonders why people might be stashing their money in things like oil, where you know how many gallons of gasoline you can refine from a barrel?

Or shall we talk about the Treasury Auctions the last two days, that could only be considered "horrible" in terms of their subscription rates (bid to cover) and indirect participation? Clearly, foreign governments aren't interested in this debt to any material degree, and neither is anyone else!

Might that have something to do with the fact that Treasuries have been contaminated by that very same Federal Reserve, and people are starting to think that the entire United States might follow California?

Hmmmm.

Speaking of Fraud, here's a grand-daddy - a former UBS banker is pleading guilty and going to squeal like a pig:

"A former UBS AG private banker, facing prosecution for participating in a U.S. tax-evasion scheme, is scheduled to enter a guilty plea next month in federal court, and people familiar with the matter said the banker will aid a Justice Department probe aimed at the Swiss-based bank."

Heh heh heh... Now we're talking. All those nice, wealthy clients who were screwing the IRS better be either warming up the G-IV engines or be prepared to bend over.

More importantly, isn't the proper penalty here to pull UBS' operating charters in the United States? We now have, it is alleged, a bank that actively worked with people to illegally evade United States tax laws, and yet this same bank has a federal charter and operates in the United States.

What's wrong with this picture?

As if that's not enough bilking going on, we now have companies pushing credit cards that draw on one's 401k as a loan! I thought I had seen every piece of possible stupidity in the world, but this takes the cake:

"Funds set aside for withdrawal may earn lower interest rates than other assets in the savings plans, and transactions can lead to tax penalties and a variety of fees, the Financial Industry Regulatory Authority said today in an investor alert titled 'Think Before You Swipe.'"

How about BAN that sort of idiotic "plan" in the first place!

Dell rocketed higher afterhours on a good earnings report, but their "beat" was almost entirely driven by firing 3,700 people (and thus lowering costs.) They also had cautious comments on US demand for their products, saying they saw "conservatism". Didn't matter - the market loved it. Oook.

The Economist published a nasty article in which they compared the drop in home prices over the last quarter to The Depression.

You want the good news or the bad news? Oh hell, here's the graph:



That's right. Your home price is depreciating faster than homes did in the depths of The Depression. And to make it worse, we have high price inflation right now too (they didn't then), which you have to add back in because, of course, you care about "real value" (or purchasing power, to be more direct), not nominal price.

So in reality you're losing almost 20% a year, not 15.

Or roughly double the depths of The Depression.

Still think this we won't even get a recession out of this, do you?

Personal income and spending flat, up 0.2% on both numbers. Inflation-adjusted personal income and spending? Zero. They're really bad. No momentum for growth in there.

Where's the beef? Well, the spending is in the beef. More specifically, in food (and of course in gasoline!) Wages are clearly not keeping up with price inflation, but heh, I've been saying that since, uh, when?

In fact, despite the pumping of the "better than expected economy" on CNBC, the truth is that since October real personal income, adjusted for inflation, has been negative, and that is using the government's intentionally-understated price inflation figures.

Since the folks in the top quintile have been responsible for an outsized contribution to income growth in the last five to eight years, guess what - those in the bottom brackets are really getting hammered.

CNBC's favorite "Jacker" (Mr. "GOP") was again cheering that we hadn't seen "Armageddon", and again, saying "The Fed's job is finished."

Really? It is eh? Then tell me Jack - why hasn't The Fed withdrawn any of their "fancy alphabet soup" nonsense? Why aren't we seeing income and (especially) spending ahead of inflation by a solid couple of percent on an annualized basis? Probably because you're full of something dark and stinky.

Note that GDP is 70% consumer spending; you do the math on what a negative income growth rate after inflation does to the economy over time.

'Nuff said - have a great weekend.