Some recent news and thoughts:

Merrill-Lynch released a report saying that the U.S. is one of “the ten most vulnerable” economies in the world (read more here: a great article by George Washington).  And:

“The United States may be on course to lose its ‘AAA’ rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche” (CNBC).

And I thought Nouriel Roubini was the main doom-and-gloom guy, but PhD economist Marc Faber thinks the US will go bankrupt too.  Maybe you’ve already seen his interview with Bloomberg.

Seriously, I don’t see how the US is going to pay for the new, extra $800 billion dollar bailout (yeah, did you miss that?  That’s on top of the original $700bn Paulson September Classic).  The US was already in a horrific debt and trade deficit situation at the beginning of this credit mess.  And what’s going to happen when 2012 hits (it has nothing to do with the Mayan calendar)??  When more seniors start needing more medicare and social security, I think the US is really going to have some serious problems. I think it looks like the US itself is basically becoming a “senior” economy like Europe.  More and more people could be moving to Asia.  I know I’ve considered it myself.  I’m not trying to be hyperbolic here, but it’s the basics of what I’ve seen and read.

If confidence is what underpins the US economy (and the world economy insofar as it uses the greenback as reserve currency), what happens now?  That’s the current battle: just confidence.  Can you buy confidence?  How much will it cost?

Just before the credit mess started in August 2007, it was consumers who were driving the US economy.  That was already really bad (you want to actually have some significant exports to other countries; right now one of the main industries left in the US, the auto industry, is really failing).  Now that consumers have stopped spending, the government has stepped in to try to do it for them (that Bush stimulus package earlier in the year didn’t work at all, since naturally people tried to save it or pay off debt).

What if “They” (the Fed, central banks, hedge fund managers, I-bankers, etc.) knew all along how bad it was going to be and the last 6-8 months have been a careful, steady public letdown, slowly leaking the info out to the market so as to hopefully attenuate the crash rather than to let it all come tumbling down at once (because to do so there could be more collateral damage than we’re seeing now)?

I think basically that’s what’s happened anyway.  As if Citigroup CEO didn’t know the trouble he was in, yet they made like they were going to “save Wachovia” etc. etc.  That’s probably the real reason the deal didn’t go through…it was just a public relations performance.

Same with the early November bear market rally.  Again, “let’s just give the public a little something to feel some ease about,” you can imagine the logic going.

A tumble down ten flights of stairs two at a time is arguably better than a direct fall down twenty flights of stairs.

I think that’s what we’re seeing.

And another example of this “hush-hush now, tell them about it later” is the big giraffe in the room, its neck growing longer by the day.  That giraffe is INFLATION, baby…. what else do you think is going to happen to all of these printed dollars?  This week it just got worse with another stimulus ($800 billion) planned by Paulson (Wake up, Terence Corcoran - it’s a stimulus given by the REPUBLICAN adminstration - not Obama here, he’s not in office yet, remember?  Your argument about disaster socialism doesn’t hold, and besides, Naomi Klein’s original argument doesn’t either.).

I mention the giraffe in the room because there’s a SECOND example of “hush-hush now, tell them about it later” and of course, that is the 800-pound gorilla in the room, known as MEDICARE and SOCIAL SECURITY.  I can give you one hint: 2012.  We’ll talk about that later…..:)

Well, it looks like Citi will be safe after all.  But the dividend is going down to no more than one cent per common share for the next few years or so! Read one of the first reports here.

I wonder how much of a rally it will see on Monday?  My guess is that it will go up about one dollar.  If I could buy some right now, I would.  This looks like a great opportunity, but it’s raising awful, horrendous questions about the future worth of the US Treasury… I see massive inflationary problems ahead as soon as there’s a whiff of market recovery.  And the US dollar going down, down, down…

Either way, the Citigroup development of the past week is good to compare with the article I wrote earlier on how safe the banks still really are or are not.  The Citi problem was well-contained within the space of about a week - they acted really quickly - but how much more money is the government going to print if the same thing happens next month to - gasp! - Bank of America?