If one listens to the press, all of a sudden the economic world that was in total free fall all of two months ago is suddenly not that bad.  So, which is it?  Is the world on the verge of total economic collapse or are we all living in a world where we just might make it out alive.

I don’t know, I’m not an economist, but I will point out a few things and let you decide.

Foreclosures continue to rise while property values continue to plummet.  Not fall, plummet.  Some areas of the nation are seeing property values falling by nearly half.

Bank or America, JP Morgan Chase, Goldman Sachs and Citibank have all reported better than expected results but there is significant discussion on how and when to release the bank stress test results.  Doesn’t that seem odd to you?

Both California and North Carolina have record unemployment

General Growth Properties, the second largest shopping mall operator in the world, declared bankruptcy due to unmanageable debt and a loss of contracts.

Venture Capital investments are at their lowest in 12 years, this means new ideas are now being fueled… new businesses are not starting….

The US has lost 4,197,371 jobs since February 2008 and the layoffs continue in waves

For some reason Ben Bernanke sees positive signs in the economic situation and is “fundamentally optimistic” about where we are doing.

So, what do you think?

Maybe Bernanke and company is looking at information unavailable to the rest of the public but all that I see is negative.  I want to see true signs of recovery, I want to see that the nation – and the world – is turning around but I simply don’t.  I simply cannot believe that things have turned for the positive.  If the banks were strong – truly strong – the stress test results would be released without debate as to how to do so.  If things were bottoming – let alone growing – the layoffs would not be continuing at such a large clip.

Bottom line, for me, I think the worst is yet to come.  GM and/or Chrysler will go into bankruptcy, major banks will go under or be nationalized, and unemployment will continue to rise – I still believe 10% is going to happen this year.

So, what do you think? Am I missing something?

For months now, the Fed and the Treasury Secretaries (Paulsen and Geithner) have expressed confidence in the free market. Extreme market conditions call for unprecedented actions by the government, all in the name of propping up the U.S. financial system. What if, however, there is more at work?

Yesterday, the Fed refused to provide information on what financial institutions obtained money. The reasoning? Such information would potentially damage the reputations and/or create a lack of confidence in banks that obtained money.

Fed Refuses to Release Bank Lending Data, Insists on Secrecy

The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral.

If you note, the same article points out:

Fed Chairman Ben S. Bernanke and then Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

What changed between September and now? Aside from the economic desperation increasing more than anyone could have expected, not much else. Auditors, economists and government officials all knew the financial institutions were facing insolvency. The financial markets were well aware then, as they are now, the banks were on the brink. As such, it is hard to make the argument that confidence in banking system would be tarnished by releasing information showing who received money.

The damage is done; the horse is out of the barn.

While reassuring to hear the Fed say transparency would be forthcoming, the reality is the Federal Reserve acts independently of Congress and the President. This body has the ability to do whatever they wish, without the need for government approval and have no duty to explain their actions to a governing body.

Maybe the lack of transparency comes from the Federal Reserve deciding who is going to survive the crisis? Maybe the Federal Reserve is taking advantage of the credit crisis in order to reshape the financial system after years of neglect.

I do not wish to sound paranoid, or some crackpot conspiracy theorist, but looking at the whole body of evidence it is clear the Federal Reserve, as well as the Treasury, is withholding information for some unknown reasons. Be it a lack of economic understanding, or something more calculated, it’s clear there is an undercurrent the general public is being left out of.

If the actions of the Federal Reserve are designed to select the survivors of the financial crisis, and not let the market direct such a decision, this would be a clear sign that the idea of capitalism as the world believed it to be was a failure.

Within the last 6 weeks the nation was told that consumer confidence has dropped to an all-time low, foreclosure rates jumped 81% in 2008, unemployment now stands at 7.6%, the auto industry faces the worst market in decades, and the national deficit will be the largest ever – 1.5 trillion – what else is there that could be said that we don’t already know?

How about a bit of potential hope?

This morning, the Fed Chairman Ben Bernanke said the following:

In their economic projections for the January FOMC meeting, monetary policy makers substantially marked down their forecasts for real GDP this year relative to the forecasts they had prepared in October. The central tendency of their most recent projections for real GDP implies a decline of 1/2 percent to 1-1/4 percent over the four quarters of 2009. These projections reflect an expected significant contraction in the first half of this year combined with an anticipated gradual resumption of growth in the second half.

Federal Reserve policymakers continued to expect moderate expansion next year, with a central tendency of 2-1/2 percent to 3-1/4 percent growth in real GDP and a decline in the unemployment rate by the end of 2010 to a central tendency of 8 percent to 8-1/4 percent.

If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stability–and only if that is the case, in my view–there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.

With the inconsistent message coming out of the last two administrations regarding the economic climate, I’m unsure how to take Bernanke’s comments. Is he implying that, in the best of all possible worlds, if everything good that can happen does, the economy will start to grown once again at the end of this year?

The world we live in today has very, very pessimistic economic data in every category – none of which points to a near term recovery – so what information is Bernanke (and the Fed) looking at to draw this conclusion? Bernanke does not appear to be a person who would make a statement in order to calm the stock markets, so this just makes me wonder what else is going on that we are unaware of.

One thing I fear about the current economy, and the attempts to move a recovery forward is President Obama’s pledge to cut the federal deficit by roughly half over the next four years.

No detailed approach has yet to be presented to the public, but what little information that is known points to a significant cut in defense spending (ending/scaling back the war in Iraq) and raising taxes on the nations richest.

What bothers me about the heavier taxation is the potential effect on the recovering economy. During the Great Depression, Hoover raised taxes as an attempt to balance the budget. This decision only lengthened, if not strengthened, the economic downturn. While one would not expect the top marginal rate to rise to great depression levels, it still is a dangerous line to walk – less disposable income leads to less economic activity.

Another bit of promise was provided by Bernanke today when he plainly stated:

“We don’t need majority ownership to work with the banks,” Bernanke said today. “We have very strong supervisory oversight. We can work with them now to do whatever is necessary.”

Translation: There is no need to nationalize banks.

That is what the administration is saying right now, but as this entire situation has taught economists everywhere this is an ever-changing situation. What is workable today my not be so tomorrow.

With the President speaking this evening, and Treasure Secretary Tim Geithner presenting more information on the banking plan tomorrow, the next few days will be very interesting to watch.

2/24 – 8:17PM UPDATE

Calculated Risk has an interesting question/point on this very subject.

If the banks are seriously insolvent, this sounds like the zombie bank approach and rewards existing shareholders at the expense of taxpayers. If the banks are not seriously insolvent, this is a reasonable approach. But how does Bernanke know the solution before the data is available from the stress tests?

So how can Bernanke say that no nationalization will take place if the data to determine so has not yet been established?  Makes one wonder just a bit more, doesn’t it?  I want to know what Bernanke knows that he is not saying…and if he is not syaing it, why is he withholding the information?  It’s clearly positive if he can determine that no nationalization is needed.

I know I’m sounding repetitive now, as I’ve said this over and over, but I need to say it once again as I am very frustrated.  Uncertainty Creates Fear!

Now you one could call me paranoid, but now I have some ability to show just how the market is impacted when Bernanke and Paulson speak in public about the current state of the market.

Here is some evidence via Newsbusters:

That message and others like it have had an impact on financial markets. Altogether, it has lost a total of 2,507 points during the 21 days listed on the Federal Reserve Board’s Web site that Bernanke delivered public remarks. That’s more than half of the 4,127 points the market has lost in that time.

 

Jerry Bowyer, chief economic advisor to BenchMark Financial Network and columnist for National Review told the Business & Media Institute it is reasonable to assume this is more than just a coincidence and the barrage of live media coverage of Bernanke has something to do with it.

 

“Yup. It’s quite reasonable,” Bowyer said. “After all CNBC usually runs the Dow on a split screen with Bernanke speaking on the other. I’d also look at Paulson – same pattern seems to hold.”

 

It’s an issue of trust, according to Bowyer – Wall Street is leery of Washington.

 

“Big Picture: the investor class doesn’t trust the political class, even if they are Republican,” Bowyer said.

The administration needs to speak with one voice because the credibility of the U.S. is in question when public officials are providing two difference views of the situation.  It really makes it look like someone isn’t at the helm of the ship.

Here is a tip – if you really want to confuse your young child, send them mixed signals. 

Every time I listen to members of the current administration speaking about the states of the economy, I feel like that young, confused child receiving mixed signals from his parents.  Case in point, look what Federal Reserve chairman Bernanke and President Bush were quoted as saying Monday about the current economic situation…

Bernanke

“Well, you hear a lot of loose talk, but let me just … say, as a scholar of the Great Depression — and I’ve written books about the Depression and been very interested in this since I was in graduate school, there’s no comparison,” 

Bush

“I can remember sitting in the Roosevelt Room with Hank Paulson and Ben Bernanke and others, and they said to me that if we don’t act boldly, Mr. President, we could be in a depression greater than the Great Depression,”

President Bush was recalling a conversation between himself, Bernanke and Treasury Secretary Henry Paulson only weeks ago.  During the last two months only negative information has hit the market – housing starts at lows, unemployment rising, credit still unavailable, Citi Group needed Government assistance – so what changed and which is it.  

Is the United States simply in a long, deep recession or is the Nation facing a “depression greater than the Great Depression”

I am not a believe of conspiracy theories, and I have no intent on being cynical, but it almost appears Bernanke and Paulson are giving the “real” information to Bush and trying to keep the public calm by saying “there is nothing to worry about, pay no attention to the man behind the curtain”.  Actually, the ones who are really getting the correct signals are those pulling money out of hedge funds but it even looks like they are starting to have problems getting their money.

Economic information aside, if the administration wants to make public perception of the economic situation any worse, continue to send mixed signals. 

Oh – and for the record – I think Bernanke is right, this has no major comparison to the Great Depression of 1929.  To me it smacks of, and has a direct comparison to, the Long Depression of 1873.

As of roughly 8:30AM central the House of Representatives began debate on the financial bailout. Roughly three hours of debate/discussion is to be had with a vote expect by noon central.

How are the markets responding? With a sharp drop at the open, the down seems to have found the bottom of the day around 10800.

Updates to come as the day moves forward.

UPDATE: 10:32 AM CENTRAL

Here is the draft of the Bailout, all 110 pages.

UPDATE: 11:05 AM CENTRAL

You can watch the House Debates at C-Span. A final vote is, indeed, expected at 12:30PM Eastern / 11:30 Central but may be later if the debates continue.

UPDATE: 11:15 AM CENTRAL

Just vote already! This is all fluff… Everyone saying how this was politics at it’s best, everyone thanking everyone else… Wait…

Ginny Brown-Waite, Republican Congresswoman, does not like this bill and does not look like she will vote in favor.

UPDATE: 11:17 AM CENTRAL

Congresswoman Marcie Kaptur, Democrate, is voicing her disapproval. She says go back to the drawing board, this is not the right bill.

UPDATE: 11:22 AM CENTRAL

Speaker of the House, Nancy Pelosi, is blaming President Bush for this financial crisis (Let’s ignore the poor lending practices).

Wow – thanks Nancy – I didn’t know that Fed Chairmen Ben Bernanke is a leading expert on the great depression.

The bill does not contain bankruptcy? I wonder what that means….Ah, she wants to help homeowners stay in their home if someone goes into bankruptcy.

UPDATE: 11:31 AM CENTRAL

The vote should be taking place but the debates continue…. Actually, Pelosi continues to slam the Bush administration, is thanking Barney Frank for all that he has done and is asking both sides to vote for the bill.

UPDATE: 11:48 AM CENTRAL

Debate still ongoing – there are a number of very unhappy Republicans suggesting that people vote no.