Shhhhhh! Here is a Secret Worth Remembering.

The Treasury is going to devalue the US dollar by 30 to 40 percent, or more, from here.

Why?

Because they have no choice. Its what you must do when you cannot selectively default by creditor and you can't pay your debt service with additional debt.

The devaluation will be coated with a minty flavored shell of verbage and G7 misdirection and government programs with lots of letters in the names.

But isn't everyone else is in the same boat?

Actually they aren't. Take a look at the current account deficits and debt service payments growth. That will tell you who is in what boat.

Remember, its a secret. Don't tell the Chinese, foreign holders of US debt, and especially the US middle class whose life savings are going to be wiped out.

Isn't monetary deflation the natural outcome of a country's failure to maintain their credit and grow their debts?

Tell it to Iceland. Want to buy some krona?

But what about Japan? I think we are going to be in a deflation where our money is worth more as we print more of it, while producing less goods in return, and our financial paper is increasingly discredited and worth less.

Excellent. Someone has to hold the bag. Welcome to the team. Have a koolaid and a cookie and take a seat over there while you wait for further processing and creative destruction.

You may also be interviewed for an upcoming documentary to be titled "Cargo Cult Economics."

P.S. Have a nice day

Paulson to Host G7 Press Briefing Today at 3 PM

Just in time to catch the market close.

Postscript: Oops, guess that didn't work.

Central Bankers in Coordinated Rate Cuts

``What's troubling the market'' is concern about ``the solvency and losses of major institutions. The market is uneasy because it doesn't have a lot of information on what the depth of those losses will be."

Bloomberg
Fed, ECB, Central Banks Cut Rates in Coordinated Move
By Scott Lanman

Oct. 8 (Bloomberg) -- The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the worst financial crisis since the Great Depression.

The Fed, ECB, Bank of England, Bank of Canada and Sweden's Riksbank each cut their benchmark rates by half a percentage point. The Bank of Japan, which didn't participate in the move, said it supported the action. Switzerland also took part. Separately, China's central bank lowered its key one-year lending rate by 0.27 percentage point.

Today's decision follows a global meltdown that sent U.S. stock indexes heading for their biggest annual decline since 1937; Japan's benchmark today had the worst drop in two decades. Policy makers are also aiming to unfreeze credit markets after the premium on the three-month London interbank offered rate over the Fed's main rate doubled in two weeks to a record.

``They are throwing the kitchen sink in to try to find stability,'' said Gregory Miller, chief economist at SunTrust Banks Inc. in Atlanta. ``They are clearly trying to get the transmission started again'' after a freeze-up of money markets.

The Fed reduced its benchmark rate to 1.5 percent. The ECB's main rate is now 3.75 percent; Canada's fell to 2.5 percent; the U.K.'s rate dropped to 4.5 percent; and Sweden's rate declined to 4.25 percent. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent.

Official Statement

``The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability,'' according to a joint statement by the central banks. ``Some easing of global monetary conditions is therefore warranted.'' ...

In more typical market conditions, stocks rally when a Fed chief indicates he'll reduce rates. Now, Bernanke's message may have less power because traders already anticipated for weeks that policy makers would need to make that move, and because of rising concern even rate cuts may do little to immediately help banks scrambling to reduce their vulnerability to loan losses.

``In normal times, a rate cut would have a positive effect,'' Gary Schlossberg, senior economist at Wells Capital Management in San Francisco, said yesterday. ``What's troubling the market'' is concern about ``the solvency and losses of major institutions. The market is uneasy because it doesn't have a lot of information on what the depth of those losses will be.''

Charts in the Babson Style for Mardi Sanglant 7 October 2008