Good day… And a Wonderful Wednesday to you! OK… Are you up on these “pirates” stories going on right now? That’s pretty unbelievable, eh? And… We are all fans of “pirates” here on the Currency Trading Desk, but these guys now are giving “our pirates” a black eye!

The currencies range traded yesterday in a very tight range, as Treasury Sec. Paulson, didn’t give in to the lawmakers and allocate $25 Billion of the TARP (Troubled Asset Relief Program) funds to automakers. King Henry said, “The rescue (read bailout!) package was not intended to be an economic stimulus or…

This from The Sovereign Society:

Hidden conspiracies, liquidity-starved central banks, another bailout for Fannie Mae (NYSE:FNM), and now even American Express (NYSE:AXP) wants a piece of that US$700 billion bailout (hence their new “banking” status)…

Shoot, I know I’m ready for a little good news. How about you?

Well, that’s the nice thing about trading currencies. There’s always a profit story hiding somewhere, even in a disastrous market like this. Yesterday, I gave you the low-down on one my favorite…

The U.S. dollar fell by its largest percentage in 13 years yesterday.

Et voila, the trend we believe is your friend returned with some impressive steam:

The Reuters/Jefferies CRB Index popped 5.9% — diddly squat compared with equity moves lately, but still the biggest daily gain for the index since its inception, in 1956.

Alas, despite the rise, the CRB is still down 24% this year.

Still, the Fed…

Good day... And a Terrific Tuesday to you! Well... Guess who was wrong AGAIN! That's right, King Henry Paulson, he of the U.S. Treasury Sec. throne... He told the world on Friday, that the bailout package was a "done deal"... And he told us again on Sunday that it was a "done deal"... The markets rejoiced, the stock jockeys danced in the streets, the karma flowed and all the stars were in alignment... And then... A (not so) funny thing happened on the way to the forum...

King Henry's men revolted, and the bailout package did NOT have the votes to pass it, and the "done deal" was "undone"! Once again this man has led investors down the wrong path. I've documented the wrong statements by this man in the past year, and still, investors hang on every word by King Henry... When will they ever learn? When, will, they, ev-er learn?

The Dow posted its biggest one point drop ever... 777 points... It wasn't the biggest percentage drop in one day ever, that belongs to the Crash of October 1987, but still, that was enormous! There needed to be a tourniquet to stop the bleeding, and not one was given to the stock market. The S&P 500 suffered too...

And... Was the bailout package the "only" reason stocks dropped like a rock? Difficult to say... But let me say this so you can hear me now and listen to me later... Even in the face of the other bailout plans (remember Bear Stearns, Fannie & Freddie, AIG, the mortgage bill?) stocks had a difficult time putting together a rally that would last a couple of days... There's an underlying problem here folks... And if you ask me, and I know you didn't, but you'll get my answer anyway! I think it's the recession we're in, but no one wants to admit it. We're so deep into a recession that the NBER doesn't know their way out, much less call it for what it is!

I had a reader chastising me because his currencies aren't going through the roof. Hmmmm... Let's look around the bar room, and take stock of what's going on here... Currencies are performing better than stocks... Bonds... Mutual funds... Housing... Commodities... I wonder where it would have been better to have money? I'm sure there's somewhere... But, for the most point, Currencies may be down... But they are outperforming most other investments!

OK... I had to get that off my chest! So... As I left you yesterday, the dollar was rallying... But that rally was stopped in its tracks early in the U.S. session, as it looked as though the votes would not count up in favor of a bailout package passing. The rally by the euro and other currencies was strong for about an hour, and then range trading set in. However, as I turn on the currency screens this morning, they are back to trading in yesterday's clothes, with the dollar swinging the hammer again.

Some of euro's problem in maintaining a well bid rally the last few days is the rot that's being found in European Banks. As I said yesterday, I thought the Fortis (FORB) problem wasn't going to be a one and done, but I thought the rot on the vine wouldn't be as bad as in the U.S. Well, this morning there's another one Dexia (DEXB)...

The Big Boss, Frank Trotter, sent me a story he found that was quite interesting, as the German Finance Minister was interviewed regarding the financial meltdown... This was a great story, and I can't give you all of it, but, I've put in the highlights... Here we go!

SPIEGEL spoke with German Finance Minister Peer Steinbrück about the roots of the US credit disaster, whether Germany is in grave danger and what the future has in store for world banking.

Steinbrück: We are experiencing the most severe financial crisis in decades, although one should be careful about historic comparisons with 1929. One thing is clear: After this crisis, the world will no longer be the same. The financial architecture will change globally.

SPIEGEL: And is the United States completely to blame?

Steinbrück: The source and focus of the problems are clearly in the United States. There are many causes. After 9/11, a great deal of cheap money was tossed into the market. Apparently some of that money went to people with poor creditworthiness. This led to the growth of the real estate bubble. The banks embarked on a race over profit margins. Then speculation spun completely out of control…

SPIEGEL: The German government is unwilling to participate in America's $700 billion bailout package. Is this your final word?

Steinbrück: I see neither the need for nor the possibility of taking on the responsibility for American banks. Besides, our situation is more robust.

So... There you go... Some statements from the German Finance Minister, who did say at one point regarding the AIG bailout... "We were all staring into the abyss"...

Long time friend and colleague, Ed Bonawitz, sent this note to me yesterday... "Given today's events in Washington and on Wall St.; the winner of the presidential election will probably ask for a re-count!"

Yes, funny... But oh-so-true! The bailout package, if passed, was going to leave a lot of important decisions in the hands of the next president. I can't imagine why anyone would want that job!

Looks like the Senate will try to revive the bailout package, after watching the carnage in stocks yesterday...

The Japanese yen pushed the envelope VS the dollar yesterday while stocks were circling the bowl, yen was in favor... This is a classic example of risk trades, like the Carry Trade, getting unwound during times like this... And when Carry Trades get unwound, the Japanese yen rallies. I would think that we should expect more of this... But then, I've thought that for almost a year now... Last November, speaking at the New Orleans Investment Conference, I emphasized that I expected risk events to be in play in 2008, and that would unwind Carry Trades. This was repeated in February at the Orlando Money Show, and every speaking engagement since...

Yesterday... Personal Income and Spending data was a little skewed, but here it is anyway... Personal Income for August "jumped" .5%, gaining back some of July's -.6% loss... Personal Spending failed to rise, and July's number was revised down...

Personal Income is still volatile due to the stimulus checks, etc. but the spending figures are encouraging and disheartening at the same time... Encouraging because maybe, we, as Americans, have stopped spending what we don't have or shouldn't be buying... But disheartening, because consumer spending makes up a huge chunk of GDP... Without consumer spending, economic growth is left with Government spending... That's no way to grow an economy!

Today, we'll see the color of July's S&P CaseShiller Home Price Index, which is expected to continue its fall. The Chicago Purchasing Manager Index (Manufacturing) will show a weaker print... And Consumer Confidence for this month is expected to weaken... Shoot Rudy, this data should fall through the trap door of falsely supported data! We'll have to see if the markets pay attention to the data today... I kind of think they will continue to be focused on the bailout package.

Gold sure shot up yesterday, gaining $30 and going back over $900... But that was short-lived... The shiny metal has given back $15 in the London market this morning. Profit taking? I would certainly think that has something to do with it. I just keep coming back to the conversations I hear on the desk every day from our metals traders, Kristin and Jen... They can't find coins or bars in Gold or Silver anywhere! There's a shortage folks... And there's no price adjustment in Gold or Silver going on! This has the all the makings of the PPT keeping the prices low...

I know, I don't like thinking that this isn't a "free market" any more than the next guy... But that's exactly what's going on, eh? There's no such thing as a shortage, it's merely in need of a price adjustment... And if there's no price adjustment, then it's being held down artificially... But by who? There's only one choice... The Plunge Protection Team... PPT...

This is no solace to Gold & Silver holders... They want their holdings to rise in value in a free market environment! Our free market, as we know it, may be the thing going into the abyss in my opinion... Think about what's happened since March... And then tell me if you think this is a free market, or one that is controlled by the Gov't...

OK, I'll get down from my soapbox now... Just think a little about that today, OK? Wow! I can really get off on tangents, eh?

So... Wachovia (WB) actually went to the highest bidder, Citicorp (C)... Yesterday morning, the Wall Street Journal was reporting that Wells Fargo was the "winner"... Well, that fell through, and Citicorp came riding in on the white horse. Citicorp bought Wachovia's banking operations... I wonder what happens to the old St. Louis Brokerage, A.G. Edwards, that was purchased by Wachovia last year? I know people that work at the brokerage, so this hits home a bit.

The dollar has gained another 1/2 cent VS the euro since I've been here this morning, so this is getting ugly... Something has to turn this around and get this ship headed in the right direction again!

And... Finally... Don't look for this to be reflected at your gas station any time soon... But the price of Oil has fallen below $100!

Currencies today 9/30/08: A$ .8065, kiwi .6760, C$ .9550, euro 1.4325, sterling 1.7990, Swiss .9080, ISK 102.20, rand 8.30, krone 5.80, SEK 6.8325, forint 169.60, zloty 2.3780, koruna 17.22, yen 104.90, baht 33.88, sing 1.4290, HKD 7.77, INR 45.97, China 6.8460, pesos 11, BRL 1.9630, dollar index 78.20, Oil $98.89, Silver $12.92, and Gold... $894

Chuck Butler

Source: King Henry Was Wrong Again!

Availability of credit allows money to flow between savers and borrowers.

Resources and funds are allocated to various projects or investments during a boom phase.

Eventually borrowing becomes excessive and leads to malinvestment, thanks to the suppression of the real rate of interest by our illustrious Federal Reserve Banking system.

At this stage, adherence to the free market theory would allow for an efficient cleansing period and a healthy recovery period. How? Irresponsible and unprofitable businesses fail. Bad debts get liquidated. Excess resources go on sale, flow into more stable ventures and pool together with more profitable resources controlled by healthy corporations or entities.

Sure, pain is felt by certain parties who can't keep things going. But the moving parts become more efficient and stronger. Healthier, more efficient businesses emerge.

As the Austrian School of economists says, the bigger the boom generated by manipulation of money and credit, the bigger the ultimate bust.

That's important, because thanks to the massive manufacturing and sale of derivatives, there has never been a boom supported to such a large degree by thin air. And since the laws of gravity haven't been outlawed yet, what goes up must come down.

And here's what's actually happening in "CEO president" George Bush's version of the free market:

Unfortunately, self-proclaimed free enterprisers - President George W. Bush is one among many - are either ignoring or are unable to accept the fact that some people must suffer as the purging process runs its course.

Often their vision is blurred by their quest for a tighter grip on the private sector. They call it "compassion," but I call it "zeal for power." Worse yet, they use other people's money - namely, yours!

In its infinite wisdom and undying compassion for the public, our government does all it can to hamper the market's cleansing tools - recessions and deflation.

Instead of one swift painful smack in the head by the invisible hand, their very visible hand "helps" to ensure the economy will grow much less efficiently AND remain much more vulnerable to future shocks to the system.

PS: Just minutes ago, President Bush warned Congress today that the country's economy was at a "very critical moment," and that its to pass his administration's bill would "painful and lasting" economic hardship. The question is: Who's listening?

What most people just don't get, says Chuck Butler is that the bailout "constitutes the single greatest case of ignoring the free market in modern history." And there is actually little justification for it.

"On a historical basis, many parts of the US economy are in awfully good shape," according to Chuck

This from The Sovereign Society:

We're told to believe otherwise because doom and gloom dominates what the mainstream media consistently reports.

One of the biggest fear indicators they use: Employment numbers. After all, Americans don't want to lose their jobs.

But look at the current employment situation on a historical basis: While U.S. job losses are on the upswing, they are fairly modest ... and should be expected in a self-cleansing market.

As my chart shows, taking into account only the last 40 years, today's unemployment rate sits relatively low compared to 1975, 1983, and 1993.

If we play our cards right we could see the current rise in unemployment top out around the same levels as it did roughly five years ago. That would be nothing to panic over.

Let's look at inflation - another economic boogeyman...

Current CPI in the U.S. sits just north of 5%. That's easily less than the roughly 6% to 7% back in 1991. And in 1980, for example, inflation reached almost 15%.

Countries, particularly emerging markets, would kill to have inflation as LOW as 5%!

More to the point, Americans can afford necessary food items as easily as ever. Here's a snippet from an article put together by the Federal Reserve Bank of Dallas last month:

Based on the average U.S. pay rate, it takes less than two hours of work to pay for 12 basic food items - tomatoes, eggs, sugar, bacon, milk, ground beef, oranges, coffee, lettuce, beans, bread, and onions.

That figure is nearly as low as it's ever been.

Consumption may finally be taking a breather, as it should, but discretionary items like computers, DVD players, cell phones, digital cameras and color TVs have become far more affordable. And that even includes those families considered "poor."

Moreover, despite my view that the U.S. government is dipping its hand way too deeply into the markets, making them increasingly less free, it's all a relative game.

Many other countries around the world are either officially in, or about to slip into, recession.

And on a relative basis, because their governments are much more entrenched in the market than Uncle Sam is in ours, their ability to recover is hampered even more.

Why is this an important part of the dollar equation? Because it means that, despite all our warts, it's quite possible the U.S. might still win the global economic beauty contest by getting judged the least ugly.

PS: There are massive changes in store for the world economic system, and currencies will be the battlefield where this change actually takes place. Join Jack as he explores one of the most profitable sub-niches of the currency world and explains how to turn those changes into triple-digit profits. Click here to find out more.

Source: What Could Have Been a $700 Billion Slap in the Face