This morning, MarketWatch tells us there’s been “a broad-based decline” of shares in Europe. Apparently, “capital adequacy worries” over banks are the cause. We presume this is a polite way of saying banks have no money. 

At least the Europeans are owning up to the fact; in the U.S. investors are still pretending that the emperor’s new clothes are real. The pan-European Dow Jones Stoxx 600 index is down 1.2%, down the second day in four.

Shanghai stocks have also taken a bath. They’ve suffered their worst fall since November. This time, the worry is that the Chinese government will tighten its loosey-goosey monetary policy. According to MarketWatch, “The Shanghai Composite Index dropped 5.8% to 2,830.63, closing below the 3,000-point level for the first time since the end of June.”

Japanese shares are also down, despite recent data showing that the Japanese economy expanded during the second quarter. Japan’s Nikkei 225 Average fell

Our faith is weakening. That is, our faith that the government will be able to cause inflation, sooner or later. Let’s review our own narrative: deflation now, inflation later.

It’s very simple. Maybe too simple. After a half a century of credit expansion, we now have a credit contraction. In this sense, everything is happening as it should.

There was a crash and credit crunch at the end of last year. Then, the feds panicked. They fought back with monetary and fiscal stimulus. Rates were cut to nearly zero. The Fed flooded the system with cash and easy credit – buying up Wall Street’s bad investments…propping up bad banks…and guaranteeing trillions worth of bad debt. And the federal government passed a stimulus program that authorized more than $700 billion in spending.

Beginning on March 9th, we also got a big bounce in the world’s stock markets – just as we

Hey… the rally is on!  Yesterday, the Dow rose 235 points. And the public’s mood is at an 8-month high.

“Look, things look a lot better now than they did back in October,” said a lawyer we spoke with yesterday. “I think things really hit bottom towards the end of last year.”

Our friend’s view is probably the dominant one. Things are looking up. Not that the news is good, but it just seems “less bad” than it was… or even less bad than was expected.

Foreclosure filings are at a record high. But “most homeowners think bottom reached,” said a news item on the internet.

“Bank crisis in US could last to 2013,” adds a headline from Reuters. Yet, most people think the banks are on the mend. They don’t expect any further major bank failures. They think the financial sector will come back… maybe slowly, but more or less

Well, with the US$ down a half a cent, and decent gains in both platinum and palladium, you have to be pretty much brain dead not to have seen the footprints of the Gold Cartel in the gold and silver markets yesterday.

It all started the moment that Sydney closed on Monday afternoon…1:00 a.m. Monday in New York. From that point on, only Hong Kong [and the New York Bullion Banks] is a player. As I’ve said before, the New York banks [or their agents] can, and do, enter the markets whenever they want.

Gold sold off about five bucks with a smallish rally starting shortly after 12:00 noon in London. That lasted until the equity markets opened at 9:30 in New York…and then it was lights out…as gold got hit for $11 bucks. Once London closed for the day, the pressure was on again [both in Globex trading and electronic trading

You can’t cure a bubble by reflating it, says Bill Bonner. But that won’t stop the Obama administration from trying. Bill says we should get ready for trillion-dollar budget deficits, huge infrastructure programs, and bailouts for “brain dead” businesses. But none of this will be able to stop the economic correction that has to happen.

This from The Daily Reckoning:

Sunday afternoon, we sat down in the large leather chair in front of the fire. Its arms were shiny and worn…much lighter in color than the rest of the brown chair.

Immediately, we felt wiser. Then, a blindingly bright flash of insight seem to come out of nowhere. Suddenly, we saw into the dark heart of the beast itself – and peered into its soul. And then, we watched in horror. In our mind’s eye we saw images of recession… depression… despair… desperation… and finally upheaval…in which the whole