In the meantime, job growth isn’t exactly keeping up with demand and real estate shows no signs of recovery.  Financial and health-care reform bills in Congress don’t seem to really address the fundamental dysfunctions of our institutions, but there doesn’t seem to be much in the way of a legislative alternative…  At least not one that is politically viable.

The current phase is starting to look like pure asset deflation coupled with still-high commodity prices.  So long as the quantitative easing policies of central banks promote liquidity, most of the new easy money is going to be tied up on the commercial bank’s asset sheets in one speculative form or another.  The primary strategy appears to be investing in raw materials – driving up the cost of living but strengthening the banks’ books to make them appear a bit more solvent.  The only commodities that have followed the broader deflation trend are wheat, soy, and corn.

Cheap bread, austerity, and a grand circus of reality & contest shows for distraction.  Welcome to the new global order!

Not only are regulators across Europe looking for ways to get back at Goldman for its role in selling off toxic mortgages as AAA bonds (of course, the ratings agencies had to play along as well) because the German, French, and British banks that took the hit are now scrambling for enough funds to stay solvent in the face of debt crises in Spain, Greece, and Portugal.

Of course, mortgages aren’t the only part of the market that were manipulated in order to exaggerate sharp rises and falls in value – it has long been suspected that JP Morgan, Goldman, et al have been engaged in the aggressive ‘market-making’ speculation that has brought commodities, and especially precious metals, on a roller coaster over the last few years.  If this report is true, someone at the DoJ is getting ready to go after JPM for fraud in the silver markets.  When and if that happens, expect some immediate price instability – and possibly even investigations into the physical gold that is supposedly backing up all of the paper certificates sold in the last decade.

Keep an eye out for new lawsuits and complaints going public over the next few weeks.  Its going to be an interesting time…

The state collected just over $101 billion in 2009, down $16.4 billion, even though the legislature and governor approved the largest tax increase in state history including hikes in sales, motor vehicle and income taxes.

Fears of a deflationary spiral may not be unfounded or hyperbolic after all.

Federal policy makers have been walking a fine line between allowing the nominal value of assets to deflate while trying to keep the entire economy running on borrowed cash and easy money policies.  If all of these interventions are unable to kick-start “business as usual,” the next temptation for the Federal Reserve may simply be to literally print up the money needed to pay down debts and create new jobs.  Unfortunately, the down side effects of that could include unintended levels of inflation, a drop in international confidence regarding the U.S. economy, and even the potential of widespread civil unrest as wages are unable to keep up with the price of food and other basic necessities.

In three days, almost 600 points have vanished from the Dow – nearly a 5% drop.  Of course, a lot of this is just the natural result of continued deleveraging despite federal attempts to inflate housing and stock markets with access to cheap and freshly minted money.

As the Congress reveals itself to be increasingly paralyzed and more states fall into budget crises of their own, expect stock markets to stumble once again.

In a stunning revelation, it has been announced that Bernanke may not have the number of votes required to confirm his re-nomination by Obama.

Many liberals had blasted Obama for his decision to appoint Bernanke for a second term, and his party members in Congress are taking heed of this lesson in the wake of the unexpected Massachusetts Senate race.

The question then – if not Bernanke, who?

For the rest of us, the technical movements behind this recent surge paint a much bleaker picture of what’s going on.

The primary mechanism driving equity prices at the moment is the continued fall of the dollar.  At this time, gold is testing prices near $1100 per ounce and oil is back up over $80 a barrel for the first time since the great crash first undid runaway inflation.

For workers, anything short of a huge payraise is actually turning out to be a pay cut.  As the cost of living continues to ramp up, people continue to lose jobs and the government continues to run up our debt.

In a few months, as the incentives and stimulus spending is exhausted, we will also face a new round of mortgage crisis as option-ARMs mature and commercial real estate continues in its downward spiral.

Hold on tight, this economic ride isn’t over yet.

For a better sense of relative debt loads, notice the strong resemblance between our current debt bubble and the last massive debt bubble that kicked off the start of the Great Depression.  This second chart is in terms of GDP percentages, rather than nominal (inflation-distored) dollar amounts.

Unfortunately, we’ve got a tough ahead of us in terms of paying back debt relative to our GDP and income. With government borrowing and creating new debt, the responsibility will be left to private corporations and individuals. Some public debt may help cushion the fall, but at some level we’re going to have to deal with what we already spent and consumed and promised.

Granted, Goldman Sachs wasn’t left holding subprime paper when TSHTF.  They led the way in to that mess but quickly dropped the hot potato on to sucker banks and puppet corporations.  When the dust cleared and only Goldman looked good, the government tripped over itself to hand them cash directly and through AIG.  I’m sure this has nothing to do with the string of Goldman Executives to find themselves at the Treasury Department…

Are you enjoying your economic recovery yet?

I hope so, because another crash in housing is about to get started all over again:

Or are they planning another oh-so-successful bailout for every one of those coming spikes?