“Bernanke: Economic weakness in next few quarters and risk of a protracted recession call for a well-timed, well-targeted, cost-effective fiscal stimulus w/o raising the structural fiscal deficit; given tight credit conditions the stimulus must improve credit access to consumers, home buyers, firms”

Parsing thru this sentence would be problematic for the less lucid among us, not to mention raising some philosophical questions about what really needs fixing.

But in the always and ever present short term, this sentence fragment appears to be the challenge:

“…cost-effective fiscal stimulus w/o raising the structural fiscal deficit..”

He left it to Congress to come up with the detailed implementation of this objective, but I can clearly see one way that’ll work.

Congress should pass some legislation requiring banks to change the billing address of all credit card statements to:

To Whom It May Concern
1600 Pennsylvania Ave.
Washington DC, USA

The bills will then be forwarded to European banks for payment. Ben knows how to handle it from there.

Their fiscal assault just re-leveraged into the newly discovered anti-dwarf support areas, to be reinforced with soon to follow tax-free, inverse to G-hole, funds repatriation. The doves might settle for an 80, for a while. Plus the fairies added two brand new acquisitions, the first being a new poster-character for re-branding the green assets value. If they net-out and/or disappear the previously erected mythical D-hole, from which they all suddenly appeared, to roughly 15%, the combined total of the transatlantic fiscal shake-ups with their market re-appearance just gained in probability of filling-in the empty glass in which all inhabitants dwell; to a safe-enough level. By swapping (underlying are the roughly-correct geographical relations) and hedging the tails, the blue to green relation, again roughly, will – for this operation’s duration – stay in check thus merging the both sides of the D-hole equation monetarily and hedging it (nominally) against the rest, while the rest get to watch a sex-scandal at the IMF. Side-effectively a hedge for the 80 outcome suddenly appears as the doves stop scratching their heads, for a while. Later-on, there is the well known fairies ability to, mythically, restart the cycle by either injecting the fuel into the re-branded assets or at least, this time around, into the next carry-on, reflection-protected, vehicle to pump up what’s left. A few of this fairy tale inhabitants actually think that J.K. Rowling’s characters were implanted higher IQs than all of these mythical fairies combined one. The thing is they have to be wrong.

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Euro and British Pound Drop As Lehman CDS Deadline Increases Dollar Demand.

The Euro and the Pound fell to their lowest levels in over a week as the appetite for dollars was fueled by today’s deadline for settlement of Lehman Brothers CDS’s. Rumors are that banks and other sellers are hoarding cash to payout a estimated 91% loss on the investments. Meanwhile, France’s government announced the investment of 10.5 billion euros in the country’s largest banks including BNP Baribus SA, Societe Generale SA, and Agricole SA.

The Euro would fall to as low as 1.3210 before finding support as demand for dollars and the outlook for further easing from the ECB increased. Indeed, comments today from central bank members Juergen Stark and Jose Manuel Gonzalez-Paramo where they called for inflation to ease faster than expected as growth slows. The dovish comments from the policy makers are a significant break from the staunch hawkish stance and focus on price stability. The comments may signal that further easing from the ECB could be forthcoming as the MPC tends to signal their next move. Expectations for a rate cut are at their highest levels according to Credit Suisse overnight index swaps which are pricing in 138 bps of rate cuts.

The Pound continued its losses from yesterday as it fell another 20 bps to 1.7000. The GBPUSD found support at the psychological support level but could fall further with the 10/10 low of 1.6779 as a possible target. Tomorrow’s BoE minutes may be the catalyst for another move lower as we get insight s into the central bank’s concerns and the possibility if future easing. We expect that the vote was unanimous which would signal that the MPC has finally abandoned their concern regarding inflation and that efforts to promote growth will now dictate future policy decisions.

A barren U.S. calendar will leave the dollar’s fate to the appetite for U.S. assets. The greenback’s recent rise has been in part due to a flight to safety due to the credit crisis and France’s cash infusion in to their major banks may be perpetuating these fears. However, before the peaking of the credit crisis the dollar was receiving support as the U.S. economy was viewed as the best positioned to emerge from the current downtrend. We may be seeing that paradigm coming back into play as the U.S. continues to be proactive in promoting growth as demonstrated by Chairman Ben Bernanke support of a second fiscal stimulus. Despite the declining fundamentals in the U.S. and expectations of another rate cut, Europe is still viewed as behind the curve regarding the current downturn which will keep the dollar supportive over the medium-term.

You’re either assuming stable to growing GDP, if considering trade deficit in percent terms, or the value of money to be stable to growing, if talking about nominal deficit.

I’m looking for several quarters of falling GDP. Either beginning last year (realistically) or morphed in time by the weird deflator in official statistics. That magical deflator will swing back quite soon.

And if you’re talking about nominal trade deficit, all you might have found is the beginning of deflation.
Dollar going up, credit going down, talk about the thirties…
Under the hood this is deflation. The treasury might succeed in reinflating soon enough to avoid negative CPI and second-round effects, after all wages are sticky and deflationary shocks really need time to work through the system. But in any realistic measure the US is deflating in the moment.
So the big question is: What about trade deficit in real terms or compared to GDP?

Chidambaram:
Markets might go up for now, but come earnings season, there might be another bloodbath.

JKH — I don’t really mind the attention from Mauldin, but given that he reproduced the entire post (errors and all) I guess I would have expected that he would ask as a courtesy. Maybe he asked the Council press office … .