NEW YORK (Reuters) - "One week into the Fed's effort to grease the rusty wheels of the U.S. credit system, Wall Street is wondering just who needs the money because there's no line at the window.

      Federal Reserve data released late Thursday reveals only a modest increase in direct Fed loans to banks, apart from funds borrowed by five major institutions in what was seen as a symbolic gesture.

      None of the five -- Citigroup (C.N: Quote, Profile, Research), JPMorgan Chase (JPM.N: Quote, Profile, Research), Bank of America (BAC.N: Quote, Profile, Research), Wachovia (WB.N: Quote, Profile, Research) and Germany's Deutsche Bank (DBKGn.DE: Quote, Profile, Research) -- said they needed the money. The identities of other borrowers is not known.

      "The window is open, but nobody came," said Lawrence Dyer, interest rate strategist at HSBC Securities USA, in New York.

      In a surprise move a week ago, the Fed cut the discount rate for loans directly to banks to 5.75 percent from 6.25 percent. The action was an effort to restore liquidity to markets worried about creditworthiness given the losses emanating from securities linked to the U.S. mortgage market.

      There is little agreement about why banks are not rushing to Fed's discount window, where they can get emergency loans.

      While the Fed charges above market rate on its direct loans to banks, many banks and investors are fearful of making loans to each other, especially to those with subprime mortgages on their books.

      On Thursday, Fed's direct loans to banks averaged $1.541 billion a day in the week ended August 22, the highest level since September 2001. But a big chunk of that activity stems from $2 billion linked to Citigroup, Bank of America, JPMorgan Chase and Wachovia, each of whom borrowed $500 million..."

      The Bottom Line:  The U.S. Dollar is dead.  They've killed it.  It was inevitable.  Even when it's being handed out freely to the dying banks, they turn their noses up at something that has no more value amongst the people.

      Michigan  (CNN) -- "More rain brought more grief to the already-drenched Midwest, pushing rivers and streams past their banks, while a new round of storms spawned possible twisters that left a trail of damage.

      Severe weather swept through Michigan on Friday, with a possible tornado touchdown in the town of Fenton, according to affiliate WNEM. The area was under a curfew after the storm, which destroyed several homes and knocked down trees, the station reported.

      But it's the flooding -- the worst in almost a century in some areas -- that's causing the most misery.

      In Illinois, Gov. Rod Blagojevich declared five counties state disaster areas Friday after seeing the extent of the flooding, the Chicago Tribune reported.

      "Everything you have, everything you worked for is gone right now," Vicky Metzger, a resident of St. Charles, Illinois, told CNN affiliate CLTV.

      "It's out of our control. Mother Nature overtook us, there's not a thing we can do now," she said.

      The floods have been blamed for at least 17 deaths, according to an Associated Press count. Hundreds of homes have been damaged.

More:

Floods, Tornadoes Cause Havoc Across Upper Midwest

      Moscow (BBC) - "Georgian forces have fired at an aircraft they believed to be Russian after it violated Georgian airspace, a senior government official said.

      Tbilisi could not confirm whether the plane was shot down, but said that a nearby section of forest, in Abkhazia's Kodori Gorge, was on fire.

      Russia dismissed the claim, and an air force spokesman called it "the latest provocation aimed against us".

      The two ex-USSR states' relations have been strained since a 2006 spy row.

      Earlier this month, Georgia said that two Russian planes had violated its border around the same area.

      In a separate incident, Georgia also claimed a Russian plane had dropped a missile near the capital, Tblisi.

      Russia strongly denied the accusations..."

      Amazingly, some commentators have been asking “if the monetary crisis will affect the producing economy,” and whether a recession lies ahead. In reality, the U.S. producing economy has been in a recession for the last year. This is shown most clearly by the decline in M1, the portion of the money supply immediately available to people for making purchases.

      The causes of the M1 decline are two-fold. One is the weak purchasing power of American consumers, at least half of whose decently-paying manufacturing jobs have been eliminated by the outsourcing, mergers, and productivity improvements during the past two decades. The other is that while many of the U.S. corporations not connected to housing have been doing all right, their success has been tied to overseas investments and sales, such as GE and GM who are heavily invested in China.

      This type of business activity props up the stock prices of these global corporations but does little for the working American. The presumption that overflow earnings from stockholders will benefit the rest of our domestic economy is the essence of “trickle-down,” supply-side economics and is part of the justification for the system that makes the rich richer and the poor poorer.

      But as Barron’s reported earlier this year, much of the profits from the global corporations are being held as retained earnings for future growth, rather than being passed on to stockholders as dividends. Because of the heavy debt load corporations carry today, they are all in a grow-or-die mode. Again, the result is deficient purchasing power which works to negate the already dubious trickle-down effect.

      The recession has been masked by four factors: 1) the government’s phony GDP numbers, where the “churning” of financial transactions masquerade as production; 2) the froth on the stock market that took the Dow Jones Average (DJA) from a little over 11,000 to a record-breaking 14,000 during a one-year period that ended with the decline that began in mid-July; 2) the propensity of the American consumer, which is now ending, to continue to buy goods and services on credit, including necessities of life like health care; and 3) modest growth in low-paying service economy jobs, which also may be coming to an end.

     These lesser bubbles have mirrored the big ones that are bursting as lenders lose confidence in the ability of borrowers to repay. These are the housing bubble, affecting consumers; the acquisition bubble, affecting equity funds; and the speculation bubble, affecting hedge funds.

   As the house of cards comes tumbling down, the leading question on financial websites and blogs is how deep will the decline go. Will it stop at the level of the recessions of previous decades, including 2000-2002, with a decline that is reflected in the DJA of somewhere around thirty-five percent from its peak? Or will it be the “Armageddon” scenario which would take us to depression-level conditions? Of course there are multiple possibilities based on a decline somewhere between a recession and a depression that would share some of the characteristics of each.

    Muddying the waters is the fact that the DJA is much less reliable as a measure of economic health today than in the past. This is because today the vast majority of financial transactions now take place within the furtive secrecy of the equity, hedge, and derivative markets. No one really knows what is going on, except that on any given day an announcement is made that another fund or company has been wiped out.

      Neither the Federal Reserve nor the U.S. government believes they have an obligation to gather or publish data that will help the public gauge the effects of these crises on their homes or jobs. Some might call this negligence a crime against democracy. In fact the Federal Reserve made tracking even more difficult by ceasing to report the M3 macro-currency numbers, but researchers have shown that growth in M3 is soaring while M1 goes down. 

      What appears to be happening right now is that the Federal Reserve, which oversees the U.S. economy on behalf of the financial, corporate, and government elites, is deliberately trying to squeeze as much debt out of the economy as it can. It is doing this with interest rates that are high relative to actual conditions, while trying to avoid the Armageddon scenario.

      The Fed is carrying out its “soft-landing” policy by holding credit tight while introducing “liquidity” into the markets on a day-by-day basis through use of overnight “repos” and by cutting the discount rate for bank borrowing. Conservative columnists like George Will and Bob Novak watch and shake their pom-poms from the sidelines.

      But “liquidity” is just a fancy name for more loans. The one thing we can be certain of is that every loan bears interest charges which someday, somehow, will have to be paid by a person who works for a living. 

    And if you wondered where the Fed got the $34 billion in liquidity it pumped into the markets on Friday, August 10, you weren’t the only one. The answer is that the Fed has a secret room upstairs where it keeps a large “printing press.” It’s legalized counterfeiting, but as with any counterfeit money, if people accept it in trade it acts just like the real stuff—for a while.

      The Bottom Line:  I hope you are Ready for what this may lead to.

      London  (BBC) —  "Infectious diseases are spreading faster than ever before, the World Health Organization annual report says.

       With about 2.1 billion airline passengers flying each year, there is a high risk of another major epidemic such as Aids, Sars or Ebola fever.

       The WHO urges increased efforts to combat disease outbreaks, and sharing of virus data to help develop vaccines.

       Without this, it says, there could be devastating impacts on the global economy and international security.

       In the report, A Safer Future, the WHO says new diseases are emerging at the "historically unprecedented" rate of one per year.

       Since the 1970s, 39 new diseases have developed, and in the last five years alone, the WHO has identified more than 1,100 epidemics including cholera, polio and bird flu.

       "It would be extremely naive and complacent to assume that there will not be another disease like Aids, another Ebola, or another Sars, sooner or later," the report says.

       Sharing of medical data, skills and technology between rich and poor nations is "one of the most feasible routes" to health security, it says.

Openness needed

       The WHO is embroiled in a dispute with Indonesia over its H5N1 bird flu virus samples.

       Jakarta has refused to share its samples with the WHO amid fears that pharmaceutical companies will use them to make vaccines that are too expensive for Indonesia.

       China only started sharing its H5N1 samples in June.

       The WHO report also urges governments to be open about disease outbreaks, saying nearly half of all outbreak alerts it receives come from the media.

       Drug resistance also poses a threat to disease control, the WHO says, blaming misuse of antibiotics and poor medical treatment, particularly in the case of tuberculosis.

       In an introduction to the report, WHO Director-General Margaret Chan says co-operation is crucial to combat outbreaks..."

More:

Changes in human behavior blamed for new ills

      Moscow (National Geographic) - "The Arctic, known better for its polar bears and melting sea ice than its fossil fuels, may soon become a hot spot for oil—spurring an international rush to stake claims on the seafloor.

      The Arctic Ocean's seabed may hold billions of gallons of oil and natural gas—up to 25 percent of the world's undiscovered reserves, according to U.S. Geological Survey estimates—leading some experts to call the region the next Saudi Arabia.

      That's enticing enough for countries bordering the Arctic to begin vying for the resources that might lie beneath the ice. (See a map of the Arctic Ocean.)

      First came the Russians, who in early August used a minisub to plant a Russian flag to the bottom of the ocean, 2.5 miles (4 kilometers) beneath the North Pole.

      Soon, other countries were in on the act.

      Denmark has sent an icebreaker on geological mission to study the seabed north of Greenland to see if it might be an extension of the island (which is owned by Denmark).

      The Healy, a U.S. Coast Guard icebreaker, is mapping the seabed north of Alaska. Canada has announced the creation of two new Arctic military bases and has budgeted the equivalent of five billion U.S. dollars for eight new icebreakers to protect its interests.

      But who really owns the Arctic?

Staking a Claim

      Flag-planting has nothing to do with ownership, said David Caron, director of the Law of the Sea Institute at the University of California, Berkeley.

      All we know is that Japan's Nikkei index crashed 5.4pc overnight on Friday, and that the US commercial paper market seized up last week as borrowers failed to roll over $91bn (£46bn) in short-term loans.

      We have hints that the request for the rate cut came from the San Francisco branch, so watch out for bank distress on the West Coast during the next few days.

      The Fed explained that "downside risks to growth have increased appreciably", the first admission of anything amiss since the collapse of two Bear Stearns hedge funds set off the credit crunch in late May.

      We can presume that Ben Bernanke did not undertake this volte face lightly, given his determination to end the Greenspan practice of reflexive bail-outs - and to shake off his own image as an easy money man. I suspect Mr Bernanke now fears the economy is hurtling into a brick wall.

      Beware the relief rally on Friday. World bourses fell for nine days after Greenspan cut interest rates in September 1998 to rescue Long Term Capital Management. The S&P 500 dropped 19pc and London's FTSE-100 fell 25pc before that storm passed.

      The LTCM crisis was a liquidity crunch. It occurred when the "China effect" was pushing down the price of manufactured goods, allowing central banks to slash rates without fear of inflation.

      We are in a more dangerous world now. Stagflation lurks and debt leverage is frightening.

      America is sliding into the worst housing slump since the Depression. The median price of new homes has dropped from $262,600 in March to $237,900 in June, down nearly 10pc (Commerce Department). The overhang of unsold homes is 7.8 months' supply. The Case-Shiller index of 10 major cities showed a drop of 3.4pc for all houses in the year to May, with falls of 11.1pc in Detroit and 7pc in San Diego. The market has yet to absorb the shock of 2m adjustable mortgages with "teaser" rates being reset upwards by 35pc over coming months.

      The bond markets know the fuse is already lit on mass default, which is why $2,000bn of US sub-prime and Alt-A debt packaged as securities is being marked down so violently on books - German, French and Dutch books as it turns out.

      The hit to the real economy will follow soon. Americans now face wealth deflation on both the housing and equity markets. The savings rate is negative for the first time since 1934, leaving no cushion. The game of drawing down home equity to pay bills - 6pc of GDP at the height of the bubble - is finished.

Consumers are wilting.

      Look at the profit warnings from Wal-Mart, Home Depot, and Macy's. July car sales were the lowest in nine years - not surprising, since the credit crunch has engulfed auto loans.

      A perk of my job is receiving the daily intelligence briefs of the great City trading houses. With few exceptions, they insist that Europe and Asia are strong enough to pick up the growth baton as America slows, while the Brics (Brazil, Russia, India, China) will roar onwards with a vigour that extends this business cycle beyond the old textbook limits.

      This "happy hand over" is looking ever more suspect. The eurozone slowed sharply to 0.3pc in the second quarter. Italy is slipping towards recession. French house prices fell 1.5pc in July and Spain's construction bubble is bursting.

      As for China, it is now a net drain on global demand (outside its borders). Imports have been flat for four months - excluding a July jump caused by strategic stockpiling of oil. Yet exports are surging. The monthly trade surplus has reached $24bn.

      The top sources of extra stimulus to the world economy during the past two years have been the US, Spain (yes, Spain, the bubble king) and Britain, in that order. All three are debt addicts, running out of credit.

      Watch Japan, still top creditor by far. Growth slumped to 0.1pc in the second quarter. Retail prices have fallen five months in a row. The yen has snapped back 9pc against the euro and sterling this month, as funds playing the yen "carry trade" unwind speculative positions. The deflationary vice may now tighten hard.

      The total carry trade - where hedge funds to housewives chase yield across the world, much of it borrowed at near-zero rates in Tokyo - is now $1,200bn. It has been the super-fuel for the global asset boom. We had a taste of reversal last week. Liquidation pummelled New Zealand, South Africa, Brazil, Turkey, Iceland and indeed sterling. If and when rates come down in the West, yen reversal may accelerate and cause further havoc. Rate cuts may prove self-defeating at first.

      In the end, the world's central banks can always reflate the markets - if they are willing to tolerate the side-effects. The 1930s liquidity trap has been overtaken by new methods of stimulus, as Mr Bernanke made all too clear in his "helicopter" speech in November 2002. "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost," he said.

      The Fed can "expand the menu of assets that it buys", he said, citing agency mortgage debt, a gamut of bonds and even use of "commercial paper" as collateral. The process began gingerly last week. The markets may come to know real fear before it is finished..."

      The Bottom Line:  What next?

      Moscow  (The Guardian) —  "Vladimir Putin announced ambitious plans to revive Russia's military power and restore its role as the world's leading producer of military aircraft yesterday.

      Speaking at the opening of the largest airshow in Russia's post-Soviet history, the president said he was determined to make aircraft manufacture a national priority after decades of lagging behind the west.

      The remarks follow his decision last week to resume long-range missions by strategic bomber aircraft capable of hitting the US with nuclear weapons. Patrols over the Atlantic, Pacific and Arctic began last week for the first time since 1992.

      Presidential aides hinted yesterday that Russia could shortly resume the production of Tu-160 and Tu-95 strategic nuclear bombers, now that the aircraft are again flying "combat missions". The bombers would be used as a "means of strategic deterrence", a presidential aide, Alexander Burutin, told Interfax.

      Mr Putin said Russia would also resume the large-scale manufacture of civilian planes. "Russia has a very important goal which is to retain leadership in the production of military equipment," he said.

      The new emphasis on Russia's revived military prowess comes against a backdrop of deteriorating relations with the west. Mr Putin has denounced the US's missile defence plans in Europe, scrapped an agreement with Nato on conventional armed forces, and grabbed a large, if symbolic, chunk of the Arctic.

      Yesterday a senior Russian general warned the Czech Republic it would be making a "big mistake" if it permitted the US to use its territory. Yuri Baluyevsky, Russia's military chief of staff, said Prague should hold off any final decision on the shield until after next year's US presidential elections.

      "I do not exclude that a new administration in the United States will re-evaluate the current administration's decisions on missile defence," he said, after a meeting in Moscow with the Czech defence minister, Martin Bartak.

      Speaking at yesterday's MAKS-2007 international airshow, Mr Putin said: "Russia, as a state that has acquired new economic capabilities, will continue to attach special importance to high technology and development."

      Analysts, however, took issue with Mr Putin's claim that Russia was already the leading producer of military aircraft. However, they acknowledged that Russia had developed some impressive "technologies".

      These include a new S-400 missile and aircraft interceptor system, similar but better than the US Patriot, and a lethal new supersonic cruise missile, the Meteorit-A.

      "They have some very good kit," one industry observer said.

      Russia also used yesterday's airshow - held at Zhukovsky, a former Soviet airbase on the leafy outskirts of Moscow - to show off its latest generation of jet fighters.

      These include an upgraded Sukhoi jet, the SU-35, which has a new engines and a new radar system, and a revamped "vector thrust" MIG, the MIG 29-OVT. "They are good aircraft. The MIG can do a very lovely flip," the industry observer added.

      One analyst said Mr Putin did not want confrontation with the west but was determined to restore Russia's strategic parity with the US.

      "Russia wants balance. It wants a strategic balance with the US," Ivan Safranchuk, a Moscow-based expert on defence, told the Guardian.

      "Russia wants to do this as cheaply as possible. But with the Bush administration withdrawing from arms control treaties, Russia is saying it is also ready to keep the balance at a high level of cost."

      Asked about Russia's resumption of long-range bomber patrols, Mr Safranchuk said: "It's significant. For 15 years the political leadership was constraining the military on this. Now it isn't."

      In the 1960s and 1970s the Soviet Union produced more civilian planes than any other country in the world apart from the United States.

      After the collapse of communism, Russia's impoverished government drastically cut spending on its aircraft industry. Factories producing military planes fared better than those building civilian aircraft, mainly because of buoyant sales to India and China. But Russia started to fall behind the west in the design of advanced fighters and other military aircraft.

      Mr Putin is now determined to make Russia the world's third-largest manufacturer of passenger jets - after the United States, with Boeing, and the European Union, with Airbus.

      Russia's passenger airlines own about 2,500 ageing aircraft - of which just 100 are western-made models - although they fly one-third of all Russian passengers.

      Last week Russian officials said they planned to build 4,500 civilian aircraft by 2025, while the Kremlin has pledged £125bn to boost the civilian industry.

      As part of the plan to boost significantly Russia's civilian aircraft industry, a new state-controlled organisation, the United Aircraft Corporation, has been created.

More:

U.S. to leave Cheyanne even as Russia flexes muscle

      GENEVA (Reuters) - "Infectious diseases are emerging more quickly around the globe, spreading faster and becoming increasingly difficult to treat, the World Health Organisation (WHO) said on Thursday.

      In its annual World Health Report, the United Nations agency warned there was a good possibility that another major scourge like AIDS, SARS or Ebola fever with the potential of killing millions would appear in the coming years.

      "Infectious diseases are now spreading geographically much faster than at any time in history," the WHO said.

      It said it was vital to keep watch for new threats like the emergence in 2003 of SARS, or Severe Acute Respiratory Syndrome, which spread from China to 30 countries and killed 800 people.

      "It would be extremely naive and complacent to assume that there will not be another disease like AIDS, another Ebola, or another SARS, sooner or later," the report warned.

      Since the 1970s, the WHO said, new threats have been identified at an "unprecedented rate" of one or more every year, meaning that nearly 40 diseases exist today which were unknown just over a generation ago.

      Over the last five years alone, WHO experts had verified more than 1,100 epidemics of different diseases.

      With more than 2 billion people traveling by air every year, the U.N. agency said: "an outbreak or epidemic in one part of the world is only a few hours away from becoming an imminent threat somewhere else.".."

      NEW YORK (CNNMoney.com) -- Already-battered U.S. auto sales could be the next victim of the problems with mortgages, declining home and stock prices as potential car buyers delay purchases due to uncertainty.

      Industrywide U.S. auto sales in August could be off 10 percent from a year ago, according to an early read from sales tracker Edmunds.com. That follows July sales that were 19 percent below year-earlier levels.

      Jesse Toprak, executive director of industry analysis for Edmunds.com, said that the downturn in home values and credit issues that were seen in the July numbers could be an even bigger factor this month.

      "I think the issue is becoming more pronounced," he said.

      Sales weren't just weak at domestic automakers, such as General Motors (Charts, Fortune 500), Ford Motor (Charts, Fortune 500) and Chrysler Group. Year-over-year sales fell in July at Toyota Motor (Charts) and Honda Motor (Charts) as well. Many forecasters are cutting full-year auto sales targets in the face of these weak summer sales. And some experts say the turmoil in housing could throw even more dirt in the gears.

      CNW Research, which specializes in surveys of car buyers, found in its latest reading that 13.6 percent of the potential market's customers were canceling or postponing plans to make a new-vehicle acquisition any time soon, up from 10.1 percent last year.

      And of those postponing or canceling plans, home-related issues jumped to the No. 1 reason, cited by 17.6 percent of those staying away from dealers' showrooms, with nearly 11 percent of that group citing a decline in their home equity and another 6 percent citing an increase in their monthly home payment.

      Of those postponing purchases, 10.7 percent cited problems with credit scores, as some sources of car loans are tightening lending standards. Gas prices are a distant third, cited by less than 5 percent of those delaying purchases.

      "We're probably going to see some pretty bad [auto sales] numbers for the rest of the year," said Art Spinella, president of CNW. "To put it simply, housing is now the major hurdle to new car purchases. The next three to four months are not going to be much better if it's better at all. People are not interested in buying a new vehicle."

      Only two years ago, the CNW survey found just 2.3 percent citing home-related issues as a reason to postpone a car purchase, while 5 percent cited credit score problems and about 3 percent cited gas prices.

      Automakers, led by GM, are upping cash-back offers and other inducements to try to breathe life into sales in the face of headlines about home foreclosures and market meltdowns.

      GM spokesman John McDonald said that GM isn't seeing any sharp drop-off in sales it can trace to the current mortgage and housing slowdown.

      "It is one of a number of headwinds," he said. "There's fuel prices, there's interest rates and there's housing prices. But we're not seeing anything new that we've not been talking about for more than a year."

      But one auto industry executive, who spoke on condition that his name not be used, said that the higher incentive spending by automakers, particularly on GM pickups, may mask some of the bite that housing is putting on sales.

      "The home was not only a source of financing for some car purchases, it contributes to a positive feeling psychologically," said the executive. "That led to a confident outlook, a view that 'I can go ahead and spend from paycheck to paycheck and buy new cars when I want to because the value of my home and portfolio have gone up.'

      "It's silliness to say the credit crunch doesn't matter," said the executive. "If the final sales numbers for August have any strength, it will be because of incentives."

      Experts in the field say that car purchases are one of the first items that consumers can and will put off if they are nervous about their own financial outlook, long before they'll cut back on eating out or other discretionary purchases.

      The Bottom Line:  Same sad song being sung by the mortgage lenders.

      GAYS MILLS, Wis.  (Fox) —  "A powerful storm system that swamped the upper Midwest and killed at least seven people moved into Ohio on Tuesday as weary Minnesota residents returned to their water-logged homes. For many, it was a surreal scene.

      Searchers found the body of a man tangled in a tree about four miles from his wrecked, upside-down car near a creek south of Lewiston, Minn.

      Damage estimates from this weekend's deadly flash floods climbed into the tens of millions. The rain moved into Ohio, where roads flooded, schools canceled classes and residents were rescued from flooded homes by boats.

      The death toll from the two storm systems — one in the Upper Midwest and the remnants of Tropical Storm Erin in Texas and Oklahoma — climbed to 22.

More:

Hurricane Dean Heads Into Gulf Oil Installations

Panic Is Now Hitting
U.S. Money Markets!

     We are witnessing the most dramatic — and potentially most consequential — panic rush to safety in modern history.

     We can't tell you exactly what set off today's new fire. No one knows yet.

     But we can clearly see the smoke. It's all over the money markets!

Here's what's happening:

Some of the world's largest and most "professional" investors, so cozy in their complacency just days ago, are dumping short-term loans (commercial paper) like hot potatoes, especially those backed by mortgages.

     And with virtually no one willing to buy them, the rates that borrowers have to pay on these loans have gone through the roof.

     Meanwhile, investors are so utterly desperate for a safe haven, and so anxious to throw more money into short-term Treasury bills, they've caused one of the greatest plunges in T-bill rates of all time …

• The 1-month T-bill rate has plunged from 4.52% last Tuesday to as low as 1.25% today. That's not a typo! It was actually down by more than THREE full percentage points in just four trading days!
  
  
• Today alone, the 3-month T-bill rate was down by over one full percentage point before recovering a bit.
  
  
• The all-critical spread, or difference, between the 1-month T- bill and 30-day commercial paper rates is now as much as THREE times bigger than it was just a few days ago — another confirmation of panic in these markets.

     Things are happening so fast, even the nation's leading news organizations are having trouble keeping track.

     At noon today, for example, Bloomberg sent out a release saying that today's decline in the 3-month T-bill rate was the biggest since the Crash of '87. Then, a half hour later, they quickly followed up with another release saying that it's actually the biggest decline since they started collecting data in 1983.

     We've looked back at our records and we can tell you flatly: In percentage terms, today's decline in Treasury-bill rates is the largest since World War II, another indication of how severe this panic has become.

Here's what all this could mean to you …

     First, even investors in the shortest-term debt market are shunning any kind of loans with risk attached to them. They don't want sub-prime paper. They don't even want prime paper. They just want ultimate safety — short-term Treasury bills backed by the full faith and credit of the U.S. government.

     Second, if you've got a chunk of your nest egg in one of our favorite short-term Treasury-only money funds, good. It means you already own what nearly everyone else now wants.

     But if your fund has an average maturity of just a few days, don't be surprised if your yields start dropping sharply very soon.

     Third, don't be surprised if the panic in the U.S. money markets soon becomes a panic in the U.S. stock market. Heck, if investors think normally-safe commercial paper is so risky, why should they believe stocks are any less risky?

     Fourth, with the yield on U.S. Treasuries plunging, watch out for another, even more severe plunge in the U.S. dollar, especially against the Japanese yen.

     Fifth, brace yourself for more. Today's panic in the money markets is just a sampling of what's possible in the days ahead..."

      The Bottom Line:  You should know the Bottom Line by now.

      MONTEBELLO, Canada (MSNBC) - "Security issues highlighted the North American summit Monday where President Bush and the leaders of Mexico and Canada are crafting a plan to secure their borders in case of a terrorist strike or other emergency.

      Bush, Mexican President Felipe Calderon and Canadian Prime Minister Stephen Harper want to find a way to protect citizens in an emergency — perhaps an outbreak of avian flu or a natural disaster — without the tie-ups that slowed commerce after the Sept. 11 attacks.

      Calderon is cutting short his trip to Canada to return home to manage his own natural disaster: Hurricane Dean is bearing down on the Yucatan Peninsula. Maurico Guerrero, a spokesman for the Mexican embassy in Canada, said Calderon will attend all the events Tuesday at the summit, but his schedule has been streamlined and he will no longer stay another day, as planned.

      The three leaders are also seeking middle ground on issues ranging from energy to trade, food safety to immigration. Few, if any, formal announcements are expected at the meeting at a highly secured red cedar chateau along the banks of the Ottawa River.

      The meeting is also designed to bolster a compact — dubbed the Security and Prosperity Partnership of North America — that serves as a way for the nations to team up on health, commerce and emergency preparedness.

      “The focus over the last year has been on developing a plan on how the three countries can deal with the circumstances of avian influenza,” said Dan Fisk, a National Security Council official who briefed reporters. “But building on that, we hope to have a larger discussion among the three countries — on a continental basis — about how are we prepared to deal generally with an emergency.”

'Say No To Americanada'

      Several hundred demonstrators protested on issues such as the war in Iraq, human rights and integration of North America. One carried a banner that said, “Say No To Americanada.”.."

      The storm -- with maximum sustained winds of 160 mph -- was not expected to weaken before its landfall on the east coast of the Yucatan Peninsula, the National Hurricane Center said.

      A Category 5 storm is the most extreme level on the Saffir-Simpson scale, the standard measurement for hurricanes. Such hurricanes can have a storm surge of more than 18 feet and are powerful enough to take off roofs, uproot trees and wipe out buildings.

      Dean is expected to pour 5 to 10 inches of rain on the Yucatan, Belize, Guatemala and Honduras. Some areas could see up to 20 inches -- enough to "cause life-threatening flash floods and mud slides," the hurricane center said.

      Parts of Belize, including Belize City, were put under a curfew Monday night, and Prime Minister Said Musa froze prices of goods and services to prevent price gouging. People were being evacuated from low-lying, coastal and valley areas to hurricane shelters, the prime minister's office said.

      Mexican President Felipe Calderon, who was in Canada for a trilateral meeting with President Bush and Canadian Prime Minister Stephen Harper, announced he would cut short his visit and return home Tuesday to deal with the storm.

      At 11 p.m., Dean's eye was located about 150 miles (245 kilometers) east of Chetumal, Mexico, the hurricane center said. The storm was moving west at about 20 mph (32 kph).

      Yet most economists insist that Main Street will trundle along just fine, regardless of what happens on Wall Street. But will it?

      It's true that some panics pass without consequence. But there are times -- think October 1929 -- when the tremors on Wall Street anticipate a more widespread economic storm. Given the tremendous run-up of debt in recent years, there's a good chance that today's credit crunch will turn out to be more than just a wisp of cloud in an otherwise blue sky.

      Such wisps, to be sure, have appeared before. On Oct. 19, 1987, stocks fell by 22 percent. Nearly 60 brokerages went bankrupt, and many worried that a depression was around the corner. The fears were overblown. It turned out that the causes of the crash were merely technical. A large number of investors had been following a particular strategy, known as portfolio insurance, which required them to sell stocks automatically as the market fell. That created a cascade of forced selling. As the panic hit, the Federal Reserve Bank, with Alan Greenspan at the reins, rode to the rescue, providing money for the financial system. The stock market soon recovered.

      The hedge fund Long-Term Capital Management started to collapse in the early fall of 1998. This fund, run by a bunch of the smartest traders on Wall Street aided by a pair of Nobel laureates, had borrowed about $25 for every dollar of its own capital. The market went haywire as LTCM's huge holdings in equities, bonds and other securities were sold. It turned out that many other investors had placed similar trades, also funded with borrowed money. Once again, the Federal Reserve performed its duty, providing liquidity to the financial system and even cutting interest rates. Over the next six months, technology stocks listed on the Nasdaq exchange soared by more than 50 percent.

      The 1987 crash and the LTCM debacle each involved a "liquidity crisis." Forced sales of financial securities drove down prices, creating a panic and temporarily straining the capacity of the financial system. But liquidity crises per se have little if any economic significance. Provided the problem is contained relatively early on, a recession can be avoided.

      Is that what will happen this time? In his 1873 book, "Lombard Street," British financial journalist Walter Bagehot described how fear spreads in financial circles: "Incipient panic starts with a 'vague conversation.' People are talked about every day, [and] as a panic grows, this floating suspicion becomes both more intense and more diffused: it attacks more persons, and attacks them all the more virulently than at first." At times such as these, Bagehot wrote, "men of experience" bolster their positions by borrowing money while it's still available. However, "minor money dealers come under suspicion" and have trouble finding funds.

      That's a pretty good description of what has happened in the financial markets over the past month or so. In mid-June, a couple of hedge funds run by the brokerage house Bear Stearns announced surprise losses on investments in supposedly safe triple-A-rated mortgage securities. Over the following weeks, suspicions grew. Several other hedge funds, in the United States and abroad, have imploded. A small bank in Dusseldorf, Germany, that was supposedly funding mid-size industrial companies, has had to be bailed out by German taxpayers after it announced large losses on liabilities kept off its books (shades of Enron). In Canada, a firm that helps companies issue commercial paper -- the stuff that goes into money market funds -- experienced problems rolling over its debts. People have suddenly realized that many money market funds were lending money to obscure investment vehicles that used their money to invest in subprime mortgage securities. Countrywide Financial, the second-largest provider of mortgages in the United States, has been forced to draw on emergency funding from other banks to stay afloat.

      When fear replaced greed in the financial markets, Bagehot knew what the authorities should do. "A panic grows by what it feeds upon," he wrote. It "is a species of neuralgia, and according to the rules of science you must not starve it." Providing that the central bank lends freely at such times, the panic will pass. Over time, Bagehot's advice has become the orthodox practice of central bankers, whose main purpose is to act as "lender of the last resort." Both the Federal Reserve and the European Central Bank have dutifully performed this function over the past couple of weeks.

      Treasury Secretary Henry M. Paulson Jr. believes that the recent flurry in the markets will have little lasting impact. A recent poll taken by Consensus Economics finds that most economists expect the United States to return to about 3 percent growth next year, which is around the average growth rate for the economy. But that's assuming that the recent credit crunch is merely a passing liquidity event, like the 1987 crash.

      There are times, however, when credit booms have more profound consequences. Research suggests that severe financial crises tend to follow the rapid expansion of credit. The longer the credit boom endures, the more severe the hangover. Furthermore, because real estate is not liquid and the process of foreclosing on defaulted mortgage loans is time-consuming (as well as politically problematic), the economic downturns that follow property booms tend to be deeper and to last longer.

      The experience of the U.S. economy after the 1920s and that of Japan in the 1990s appears to confirm these findings. In both instances, the period of credit expansion lasted several years, largely involved real estate speculation, and came to involve much of the population, whether that meant plunging into American stocks with borrowed money in 1929 or buying Tokyo condos with 100-year mortgages in the late 1980s.

      Some economists take heart from the fact that inflation is currently quiescent. This ignores that the longest-lasting American crises over the past two centuries, those of 1837, 1873 and 1929, have each followed periods in which consumer prices were relatively stable. Needless to say, during the preceding booms, real estate and stock prices, fueled by rapid credit expansion, had soared.

      The quality of lending and the "soundness" of credit also have a bearing on the extent of a crisis. Commenting on the collapse of the London bank of Overend, Gurney and Co. in 1866, Bagehot wrote that "losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better." What would Bagehot have made of the so-called NINJA loans of recent years, supplied to homebuyers with "No Income, No Job and No Assets"? He may have raised an eyebrow at the "liar loans" given to those who falsified the information on their mortgage applications and would certainly have expressed disdain for the loans, many without traditional covenant protection for lenders, that until recently financed corporate buyouts.

      Finally, a credit crunch is likely to have a bigger impact when the financial system has become weak. The so-called Long Depression that started in 1873 was sparked by the collapse of Jay Cooke and Co., one of the largest U.S. banks. More than 2,000 banks in the United States failed in 1931. Those failures wreaked havoc on the economy. Banking failures and bad debts plagued the Japanese financial system throughout the 1990s.

      There's a good chance that the current panic will give way to a full-blown economic crisis. That's because the credit boom has been going on for five frenetic years and virtually everyone has become involved, either directly or indirectly. An increasing number of businesses, from motorcycle retailers to cellphone operators, are finding their sales affected by the subprime debacle, according to the Web site Footnoted.org. Household spending continues to exceed income by a large margin. If credit stops flowing to consumers, the economy is bound to suffer.

      Many people, including Treasury Secretary Paulson, believe that the financial system is robust enough to weather the crisis. It's true that, after many fat years, banks have lots of capital. But that was also the case in October 1929.

      I believe that something profound has happened in recent weeks. The credit system is losing its, well, credibility. People no longer trust the triple-A ratings that many complex debt securities carry. The risk models used by rating agencies, hedge funds and banks have also come under suspicion. The effects of subprime losses are being felt in unexpected places, including supposedly impregnable money market funds. Hedge funds and other highly leveraged investment vehicles are being forced to unwind. After years of excess, credit is beginning to contract.

      There has been a "run on Wall Street finance," said Doug Noland, editor of the online Credit Bubble Bulletin.

      The Bottom Line:  Are you awake yet?

      HOUSTON (Fox) —  "Even with powerful Hurricane Dean days away and its path uncertain, officials in sodden south Texas left little to chance Sunday, readying planes, gasoline and hundreds of buses to get residents out in a hurry.

      Authorities passed out sandbags, evacuated inmates and opened emergency operations centers in a region still soaked from the remnants of Tropical Storm Erin, which along with other systems caused severe flooding Sunday and at least 13 deaths from Texas to Minnesota.

      A state of emergency was declared in the resort town of South Padre Island. About 3,300 jail and prison inmates in the area were to be bused to correctional facilities elsewhere by Sunday night.

      In Washington, R. David Paulison, head of the Federal Emergency Management Agency, said up to 100,000 people might have to be evacuated from the state's southeastern coast and its immigrant shantytowns near the Mexican border. The storm is on course for northern Mexico, but could shift and hit the region around Brownsville, Texas, Paulison said.

      Flooding from what was left of Erin forced about 1,000 people to evacuate homes in Abilene on Sunday and was blamed for at least 13 deaths in Texas, Oklahoma and Minnesota.

      The level of preparation for Dean was influenced by memories of two destructive hurricanes that hammered the Gulf Coast region in 2005.

      "In part, it is because of the unfortunate events from Rita and Katrina," Cavazos said.

      During Rita, the evacuation quickly turned into a nightmare of clogged highways, stalled traffic and sweltering heat, as motorists from the coast ran into residents fleeing Houston. Gas stations ran out of fuel and supplies, and drivers sat for hours on gridlocked evacuation routes.

      Dean was a Category Four storm late Sunday, threatening to pour as much as 20 inches of rain on Jamaica. The National Hurricane Center in Miami said it was projected to reach the most dangerous hurricane classification, Category 5, with wind of 160 mph before crashing into the Mexican coastline near Cancun on Monday night or Tuesday.

      The storm was forecast to make landfall Wednesday, likely along the coast of northern Mexico, the hurricane center said.

      Even if Mexico gets the brunt of the storm, Texas could still get soaked by Dean's outer bands of heavy rain, Cavazos said.

      A Home Depot in Brownsville ran out of its supply of plywood Sunday as people rushed to board up windows, and about 60 people waited in line for a new shipment to arrive. Other customers crowded the store scooping up batteries, generators, water and flashlights, assistant store manager Edward Gonzalez said.

      "We're hoping it misses us, but it is a huge, huge storm," said Gonzalez. "Everyone says they're not going to take chances. They're going to board up windows and be ready to ride it out."

      Texas Gov. Rick Perry mobilized the National Guard and search and rescue teams, shipped 60,000 to 80,000 barrels of gasoline to gas stations in the Rio Grande Valley, and got a pre-emptive federal disaster declaration from President Bush..."

      This effort to rewrite Russian history comes on the heels of Kremlin attempts to push its views of a great resurgent Russia into every sphere of science and the humanities. Russia's most high-profile scientific venture of recent years used its famous research submarines to plant a Russian flag on the seabed under the North Pole last month as part of an effort to claim the potentially resource-rich area for Russia. And the Kremlin's best-funded humanities program creates a new Russian Institute to promote spoken Russian and Russian culture around the world, and particularly in former Soviet states.

      The Bottom Line:  Do you feel a draft?  Yep, it's just the new Cold War.

      NEW YORK (LA Times) - "Worried about the stability of mortgage giant Countrywide Financial, depositors crowd branches. In Laguna Niguel, Bill Ashmore drove his Porsche Cayenne to the bank's office and waited half an hour to cash out $500,000. "It's got my wife totally freaked out," he said.

      Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

     Countrywide Financial Corp., the biggest home-loan company in the nation, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren't alarmed by the volume of withdrawals from the bank.

     The mortgage lender said it would further tighten its loan standards and make fewer large mortgages. Those moves could make it harder to get a home loan and further depress the housing market in California and other states.

    The rush to withdraw money -- by depositors that included a former Los Angeles Kings star hockey player and an executive of a rival home-loan company -- came a day after fears arose that Countrywide Financial could file for bankruptcy protection because of a worsening credit crunch stemming from the sub-prime mortgage meltdown.

    The parent firm borrowed $11.5 billion Thursday by using up an existing line of credit from 40 banks, saying the money would help the lender meet its funding needs and continue to grow. But stock investors, apparently alarmed that the company felt compelled to use the credit line, sent Countrywide's already battered stock down an additional 11%.

    At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.

    In West Los Angeles, a Countrywide supervisor brought in from another office served coffee to more than 25 people waiting calmly for their turn with the one clerk who could help them.

    Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.

    "It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.

    "It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."

    Customers, most of whom said they were acting just in case, said they went to the lightly staffed branches because they couldn't get through to the bank via its toll-free number or its slow-moving website.

    "I doubt it will go under, but I want to protect myself," said Rogie Vachon, who was the Kings' most valuable player for several years in the '70s. Vachon said he went to the West L.A. branch to withdraw some money because his account balance exceeded the limit on insurance provided by the Federal Deposit Insurance Corp.

    In a statement, the bank said: "It is very important to remember that Countrywide Bank is well capitalized, with FDIC-insured deposits, and is one of the largest banks in the United States, with assets over $107 billion."

    The bank added that it had significant access to outside capital and was still highly rated by debt-rating firms.

    As for parent firm Countrywide Financial, the mortgage giant said draining its credit line would allow it to continue operations while refocusing its business on the "plain vanilla" mortgage loans that can be sold to Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies.

    Countrywide said it planned to fund more mortgages through Countrywide Bank and have the bank invest in certain loans that Fannie Mae and Freddie Mac won't buy, such as "jumbo" mortgages, which in California are defined as those over $417,000.

    Countrywide recently was funding about $40 billion a month in mortgages. Of those, about half qualified to be sold to Freddie Mac or Fannie Mae, and half were "nonconforming" loans the agencies don't buy, including sub-prime mortgages to higher-risk borrowers as well as jumbo loans, which account for 43% of all mortgages issued in Southern California.

    Company executives declined to discuss how the heavy withdrawals at Countrywide Bank branches Thursday might interfere with that strategy.

    Mortgage industry executives, however, said that although Countrywide Bank was the nation's third-largest savings and loan, after Washington Mutual and Wachovia Bank's World Savings unit, it was far too small to absorb the entire $20 billion a month in nonconforming loans Countrywide Financial produced.

    As a result, the company is likely to make fewer loans while applying more stringent criteria in deciding who gets them -- a transition that could further pinch the strained housing market..."

      The Bottom Line:  It's ok people, nothing to see here; pay no attention to the man behind the green curtain.

      HOUSTON (Reuters) - "U.S. Gulf of Mexico oil and natural gas producers were evacuating offshore workers and shutting small amounts of production on Saturday as they watched powerful Hurricane Dean storm across the Caribbean Sea toward an entry into the Gulf next week.

      Forecasts and computer models point Dean away from the paths taken by 2005's devastating hurricanes Katrina and Rita through offshore oil production areas and onshore refining centers.

      Taking a lesson from Katrina, which defied forecasts showing it would confine its damage to Florida, companies with operations from the central to western Gulf continued pulling support workers who were not essential to keeping offshore production running.

      The U.S. Minerals Management Service said on Saturday that 10,300 barrels per day out of 1.3 million bpd in Gulf of Mexico oil production was shut in due to the threat of Hurricane Dean.

      About 16 million cubic feet out of 7.7 billion cubic feet of daily natural gas output in the Gulf of Mexico has been shut, said the agency, which oversees offshore energy production.

      So far, one production platform and two drilling rigs have been evacuated due to the storm.

      Oil majors Exxon Mobil, Shell Oil Co. and ConocoPhillips said they were evacuating workers on Saturday.

      Exxon said production was not cut on Saturday as it pulled non-essential workers from the Gulf.

      Shell said 300 more support workers were being taken from the Gulf Saturday.

      Local press in the Iranian capital of Tehran quoted Revolutionary Guards leader Gen. Yahya Rahim Safavi saying that he could understand Washington's ire toward the group because of their "leverage" against the U.S.

      "America will receive a heavier punch from the guards in the future," he was quoted as saying in the conservative daily Kayhan. "We will never remain silent in the face of U.S. pressure and we will use our leverage against them."

      There was no elaboration on what Safavi meant by the punch or the organization's "leverage."

      Washington has accused the Guards of supporting militias and insurgent groups attacking U.S. forces in Iraq -- charges Iran denies.

      The fact that the remarks, made on Thursday in the central Iranian city of Isfahan, appeared in local newspapers rather than the official state news outlets suggest the comments are for domestic consumption.

      Meanwhile, other Iranian officials continued to speak out against Washington's move to register the group as a terrorist organization, with a government spokesman calling the claims "baseless," on the Web site of the state broadcasting company..."