By Blacker yet Tuesday the banks will still be open, but their accounts will be frozen. Or at least only partial payments will be forthcoming. The Fed has printed trillions of dollars in hard currency, in anticipation of the problem. There is a good chance we will go back to being a cash economy, for a little while anyway. [If you have been hoarding your hard earned cash, the blizzard of fresh paper will make your life savings about as important as another bucket of water over Niagara Falls]

There are also contingent plans to put time strips in the new bills, and to place penalties on bank accounts which have no activity. Keep your old money as long as you can.

On Blacker than that Wednesday all the gold in storage will be locked up. Foreign countries will have nationalized their assets by then. Fort Knox is rumored to be empty, we will find out. The economy will revert to somewhere near the level we were at in the 1950's.

Russia will become a world power overnight. The Chinese will go broke along with their US consumers. There will be a workers Revolution. We will forget all about terrorism and they will forget about us.

Dont' forget that during the first Great Depression farmers went broke because no one could afford their products, and taxes went higher. That shouldn't as much of a problem this time, because money will be all over the place. It will just be a question of desirability.

If you own property, cattle or gold, you may do okay. You might even get rich if you can sell more of what you have, over and above what you need. Technological development will slow to a crawl, and we will be unable to come up with the counterdevelopments will offset many of its unintended consequences. In short people will live more simply.

http://www.prudentbear.com/index.php/CreditBubbleBulletinHome

Doug Noland's point on the redirection of resources is scary. We all know that government borrowing crowds out private sector borrowing, although it is hard to imagine a case in which there is not enough credit to go around, isn't that what is happening right now?

Bill Gross made the statement on CNBC that the mark to market problem in housing was a liquidity problem. Not sure how many caught that. He expects the Feds to underwrite the mortgage banking industry.

What is interesting is that this time they are bailing out the failed banks before any of them actually fail. In brief that is the anti-liquidationist position of the Fed. Without the threat of liquidations, nothing ever gets marked to market, and these exotic derivatives which were traded privately are never valued properly. How in the hell is any amount of regulation going to change that?

The (Republican?) premise of pre-emptiveness in everything may avert disaster temporarily, (bomb Iran today, pay the price for a hundred years?). Short of completely dismantling the Federal Reserve (good idea, and rumor has it that Obama has Paul Volcker waiting in the wings) there are no halfway measures, at least to Bernanke, for whom the threat of liquidation is the same as liquidation itself. Hence Bear Sterns was dismantled in a single weekend, behind closed doors. No liquidation there, no sir, and as Bernanke said, taxpayers will get their money back, eventually. Tell it to Bear shareholders.

There was a time when that advice was the mantra. Borrow at 6% and put in the S&P which grows 10% a year, can't miss. Hey wait a minute the S&P is down 10% but housing has lost twice that, hey it's still a good deal!

Did you ever play a slot machine with a bonus feature? You know the kind, where you line up three bonus symbols, and they take you to a different screen, where you pick from several choices, depending on the theme. Each one has a different value, and you win that prize.

When the game is over they show you where the most profitable choices were hidden. If only you had picked the third one from the right. The illusion of free will satisfies a need. (In the old days the wheels stopped, and you took whatever came up).

The illusion of choice permeates everything, from slot machines, to the stock market. Stock options are notoriously difficult to game, because they are valued with pricing models that pretty much deny the buyer of these things much of an edge, because the real money is made selling stock options. (That requires the kind of margin only the brokers have).

Markets depend on speculators, (sheep to be fleeced) investors who think they can beat the averages. Libertarian Paternalism is probably just a fancy word for carnival barker?

While the economy was losing traction President Bush asked Americans to go out and shop. In point of fact they should have been saving money. Not only was it bad economic advice, it was bad personal advice. Is Obama any different?