The Circle of Global fiscal stimulus will improve the velocity...

The Circle of Global fiscal stimulus will improve the velocity of circulation of money. Gold starts to respond to inflationary measures

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit (Update3)
By Mark Pittman and Bob Ivry
Nov. 24 (Bloomberg) -- The U.S. government is prepared to provide more than $7.7 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

Whether it’s lending or spending, it’s tax dollars that are going out the window and we end up holding collateral we don’t know anything about,” said Congressman Scott Garrett, a New Jersey Republican who serves on the House Financial Services Committee.

The feds have poured $45 billion into Citi, but so far even costly half-measures haven't worked during this crisis.
By Colin Barr, senior writer
November 24, 2008: 3:26 PM ET
"'Over-levered' is the purest description of the U.S. financial system today," Friedman Billings Ramsey analyst Paul Miller wrote in a report last week. "At eight of the largest financial institutions, tangible equity equals 3.4% of assets, which implies 29x leverage. If this wasn't bad enough, we expect that current tangible common equity will be essentially wiped out by losses from existing loan and security books."

FBR's Miller writes that the eight biggest U.S. firms - Citi, Bank of America (BAC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), Wells Fargo (WFC, Fortune 500), AIG (AIG, Fortune 500) and General Electric's (GE, Fortune 500) financial services arm - need at least $1 trillion in new capital to weather the coming recession without the prospect of an institutional failure.

He says the most likely scenario is that these eight giants will face losses of around $400 billion over the life of their existing loan portfolios - but cautions that those losses could reach almost $600 billion.
"If our models are too conservative with respect to losses," he writes, "more capital will be needed going forward."

The problems in the banking sector are made that much more pressing, Sunshine adds, by the fear of deflation now looming over the market in the wake of last week's rare decline in the consumer price index.
Sunshine says that unless the government stops the deflationary worries through AGGRESSIVE MONETARY POLICY and HEAVY FISCAL STIMULUS , the banking problems will only get worse. Government officials fear deflation because it increases the value of cash, which encourages hoarding that reduces economic activity, increasing the debt burden felt by firms and individuals.
"Having deflation is like pouring hydrochloric acid over your loan portfolio," he says

There is more on Bloomberg
http://www.bloomberg.com/apps/news?pid=20601070&sid=aMwtbyStlVhs&refer=home
“Obama has picked a very strong troika to pull the sled,” said Peter Wallison, a Treasury general counsel in the 1980s and now a fellow at the American Enterprise Institute in Washington.
They’re going to need all their skills, and coordination, to get ahead of a financial market meltdown that has confounded outgoing President George W. Bush’s policy makers. First up: putting together and passing a stimulus package that may run to $700 billion or more, in an attempt to head off millions of job losses as the credit crunch freezes the economy.
“We do not have a minute to waste” because the economy is “trapped in a vicious cycle,” Obama said at a press conference announcing his team in Chicago today. “We have to make sure that the stimulus is significant enough that it really gives a jolt to the economy.”

Obama’s program will be far larger than the $175 billion package of tax cuts and stepped-up government spending he proposed just a month ago. Some of his advisers, and Democratic Senator Charles Schumer of New York, have suggested a figure of $700 billion. Bush’s February stimulus was just $168 billion.
Obama declined to put a number on the stimulus today, saying it will be up to his economic team to provide a recommendation. “It’s going to be costly,” he said.
The incoming administration may also enlarge the $700 billion financial-rescue fund enacted last month. It may surge to perhaps $1.2 trillion, said Martin Baily, who served as White House chief economist under Clinton and is now at the Brookings Institution in Washington.


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