Doug: There's a titanic battle right now between the forces of inflation and deflation. When a big corporation like General Motors, or Fannie or Freddie, defaults on its debt, hundreds of billions of dollars disappear. Assets people thought they had and could have been converted into cash disappear. That's deflationary. In a sound banking system, in which money is a commodity like gold, money can't disappear. It can change ownership, but it can't disappear. But in our current system, it can dry up and blow away as easily as it can be created.

One major problem that stems from this is that some people benefit from government money creation and some don't. Who gets to spend it first, when it's most valued, and who gets stuck holding the Old Maid card when it vanishes? It's usually the little guy - the middle-class guy - who gets hurt when this happens. And in the US, the middle class is contracting. The financial gyrations we're going through are destroying the middle class, which naïvely believes that traditional American values still hold sway and that their government is honest. The lower class has long since lost any values, and the upper class is way too cynical and self-interested to really care. Most middle-class people will end up joining one or the other of these two classes, and that'll be a moral disaster for the country.

Today will be day 12 of 13 (or something just as silly) that the market has been melting up on no volume: yet another truly ridiculous statistic in the anals of momoism. As David Rosenberg points out: "the market has been able to digest California, Dubai, and Greece" - and this has all been offset by what? Merely promises of ever increasing liquidity and bailouts by the Fed, first domestically, and soon internationally. Have people really forgotten yet again that this is precisely what got ua on the verge of a historic collapse in the first place? Yes, the Fed bailed capitalism out last time around (with about 3 hours to spare), but this time it has gone dodecatuple all in, and unless intelligent, and very rich life, on Mars is discovered pretty quickly, this will all end in ruins (certainly those of the Marriner Eccles building).

Speaking of momentum, as everyone rushes to find ever greater fools (no scarcity these days), the economic condition is forgotten. But the market is a leading indicator skeptics will say... Perhaps, in every other Keynesian situation that did not have global sovereign default on the other side of the crossing. We are now truly in a unique situation where the market is a leading indicator of nothing but greed and stupidity (in retrospect, that's not all that unique). Here is a good recap of where we have been, and where we are, courtesy of Rosie (who we hope is sufficiently inebriated at this point to note the humor in the current situation).

CNBC.com

The US housing market will face another retreat while mortgage-backed securities and Treasurys are likely to go through a "material" correction, Meredith Whitney, CEO of Meredith Whitney Advisory Group, told CNBC Tuesday.

"The housing market surely will double dip," Whitney told "Worldwide Exchange."

Government programs to support housing have been "murky" and when the modifications caused by them come to an end, a lot of supply may come to the market and that's when the real-estate market is likely to go down, she explained.

Hopes that an improvement in liquidity and continuing investment from China in US assets will prop up mortgage-backed securities (MBS) and Treasurys are exaggerated, Whitney also said.

OpEdNews

Michael Lewis's Mass Delusion Thesis Versus Senator Kaufman's Case for Crime

It's the number one book in the county. Every day, Michael Lewis's the Big Short is getting B I G G E R, no doubt because he is so mediagenic, conversational and likes to laugh wiyh the hosts who interview him about his findings.

On Sunday, he laughed with Steve Kroft on 60 Minutes when the two bantered on about how about stupid it all was and why so many smart people drank the Kool Aid. The story he tells has no hard edges really"its about "delusion," Wall Street deluding us all and then each other.