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).

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?

In an interview on Wednesday with a Bloomberg correspondent, Roubini let out another dire prophecy, although it’s not very specific and not different than what he’s been saying before.  Here are some excerpts from that interview.  You can also watch the whole video from the link below.

Basically the message is that the picture is still getting worse.

“It will be worse than the 70’s and early 80’s…will be a global recession…this year and next year.  Much worse than ‘91…. unemployment all the way to 9%.  … free-falling retail sales….house prices are gonna fall another 15% before they bottom out… I don’t think [the Fed actions] are gonna be effective…whatever the Fed does, doesn’t matter for market rates… we need a major aggressive fiscal stimulus… a 300-400 hundred billion dollar fiscal package…”

Roubini thinks we need to back the automakers, that it’s politically and economically unavoidable.

“the housing recession is still getting worse….the consumers are not spending even on non-durables… there is no bottom to this recession…”

Watch the video here.