I should immediately reassure my readers that I am not going to re-account or even continue Macro Man's story of 2007 in which Sherlock Holmes was looking for a vanishing bid in risky assets. Also, I am not sure that we are actually looking at a bid which will vanish but one which will perhaps taper off gradually or so at least is the estimated scenario policy makers would like markets to believe in. Of course, recent messages from the BOJ suggested a very cautious stance towards the economic outlook and although the ECB's chairman Trichet has ardently argued that an exit strategy from extraordinary financing provisions, the statement that, now is not the time to exit, still echoes most of the official messages coming from the ECB.

But perhaps more important than when to exit is the question of how and whether indeed it will be so

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Alabama regional lender, Colonial Bank, just became the 6th largest bank failure in U.S. history and the largest since Washington Mutual last year.

Regulators seized Colonial last Friday, selling the bank’s deposits and assets to their competitor BB&T. Colonial was founded by real estate developer, Robert E. Lowder in 1981. The bank stayed true to its roots, right to the end (of the housing bubble).

In a 2006 interview, Lowder said, “We’ve always been a real estate bank. We understand real estate lending. For us, we think it’s a good safe market to be in.” Evidently, they didn’t understand the market as well as they thought. The bank sunk under the weight of $1.7 billion in losses on bad real estate loans.

The real question regarding the failure of Colonial, is what this will do to the Deposit Insurance Fund (DIF) maintained by the FDIC.

The FDIC Deposit Insurance Fund started 2008

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Oh woe! Oh woe! O! Bama! Where is thy recovery? Yesterday, the world’s stock markets took a hit. The Dow lost 186 points… following a very bad showing in China. Is this the end of the rally?

Could be. We’re not betting one way or the other. But we’re pretty sure this rally is going to end… and end badly… sooner or later. So far, the rally surpassed the rally in ’29 by a few weeks… but has not quite reached its magnitude. It will need another few hundred points to reach the ’30 level.

But when the rally is over… then what?

Despite the fact that a majority (!) of economists polled by the Wall Street Journal say the recession is already over, there is no durable recovery.

Nouriel Roubini explains why:

“Data from the US—rising unemployment, falling household consumption, still declining industrial production and a weak housing market—suggests that the US recession

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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

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There is suddenly a lot of interest in the idea that the federal government will make holding gold illegal, an example of which is “Is the Confiscation of Gold by Certain Central Banks Likely?” by Julian D. W. Phillips of GoldForecaster.com.

He reminds us that “in 1933 the US government banned the ownership of gold by US citizens and purchased all but rare gold coins from the US public. They did this, at $20 an ounce. Two years later they revalued gold to $35 an ounce, a 75% revaluation” which instantly gave the government a lot of new, but still 100% gold-backed money to spend!

What a blatant, brazen theft! And nobody says anything! But let me take a few bucks out of the employee pension fund, petty cash drawer or the coffee jar, then it is some kind of “big deal” around here and everyone wants me to get fired! What

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Say what? Geithner begs for higher debt ceiling, says it will restore world confidence… Deficit now three times last year’s record… so Congress buys 8 private jets… A currency sea change? Bill Jenkins on the dollar’s surprise rally… Jim Nelson on the best sectors for income investing… John Williams digs deeper into Friday’ jobs report… four data distortions you need to know…

“It is critically important that Congress act before the [debt] limit is reached,” Tim Geithner wrote over the weekend in a letter to lawmakers, “so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.”

Sounds like our Treasury Secretary is finally putting his foot down, insisting that Congress pull back its lavish spending programs and start addressing our incredible $11.6 trillion national debt.

Wait… what’s that? Oh, Geithner’s actually asking for Congress to raise the debt ceiling. If Congress

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There’s a lot of Internet chatter these days about the possibility of the U.S. government seizing its citizens’ private gold holdings. What are the chances?

Well, it’s always good to bear in mind that there is no telling what the government might do. It’s already doing things that were unthinkable just a few years ago. If President Obama believes there is political hay to be made from seizing your gold – or even if he sincerely thinks such a move would be “good for the country” – we’re sure he won’t hesitate to make the grab. After all, his favorite predecessor, Franklin Roosevelt, set the precedent.

Many Americans don’t even realize that private gold ownership was forbidden for forty years, but it was. The relevant edict is Presidential Executive Order 6102 of April 5, 1933, which begins:

Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By virtue of

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Waterford, Ireland

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

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The Producer Price Index rose a shockingly high 1.8% in June, far higher than the tame readings of 0.2% in May and 0.3% in April. It was also much higher than the 0.9% consensus expectation. To be sure, most of the acceleration had to do with the rise in energy prices, which rose 6.6% on the month on top of a 2.9% rise in May. In May, the rise in energy prices was largely offset by a 1.6% decline in food prices. That left the May change in Core PPI at a slightly negative 0.1%. That was not the case this time around, as finished food prices jumped 1.1% to help fuel the increase in the headline number to its highest level in over a year. However, even if we take out food and energy to get the Core PPI, the increase came in at 0.5%, well above expectations ...

“Just how can the Fed credibly promise to be irresponsible…?”  Here’s a thought—that tiny handful of investors and analysts warning how Fed policy risks hyper-inflation are in fact doing the central bank’s work.

The Fed wants you to believe hyperinflation is looming. Or at least, it shouldwant that, if doubling its balance-sheet – purchasing and lending against investment junk – is going to work the wonders that modern central-bank theory says it can. And the Fed certainly wants you to believe it will stop at nothing to avoid deflation (”whatever means necessary” as the chairman put it back in 2002).

So anyone touting the hyperinflation risk in public is playing the shill, a decoy – seemingly unconnected – proclaiming the miracle powers of Dr.Ben Bernanke’s snake oil to CNBC anchors at every chance.

In fact, they’re doing the Fed’s work better than the Federal Reserve itself. Really.

“The major danger with a zero

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