The inflation/deflation debate is hot… It crackles and pops like a pine fire. But it gives off little helpful light. Abe Lincoln may have read by the light of an open fire. But when we tried it, we singed our eyebrows. It made us suspicious of Old Abe; maybe he wasn’t quite as truthful as he pretended to be. Later, we realized he was a mountebank. But that’s another story…

Today, we light a candle and try to interpret the shadows on the wall…

Yesterday, the Dow fell 81 points. Gold dropped $5 to $1009.

Will the feds succeed in causing inflation? Or will they fail? Will the dollar continue to go down? Or will it prove to be a safe haven currency in a time of deflationary trouble?

According to the papers, the feds have already done it. “Fed says recovery underway,” says a headline from yesterday’s press.

Another headline tells us that

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Based on a ranking analysis released on Wednesday by Virginia-based research firm SNL Financial, Bank of America Corporation (BAC) still remains the highest ranked banking institution in U.S. by second-quarter total assets. The analysis was based on the filings of Federal Deposit Insurance Corporation (FDIC). According to the filing, as of June 30, 2009, Bank of America has total assets of $2.3 trillion and total deposits of $971 billion.   Earlier this week, Bank of America offered to repay a part of the $45 billion it had received from the U.S. government in relation to its participation in the Troubled Asset Relief Program (TARP). Also, the repayment offer was aimed to end a loss-sharing deal with the government related to its acquisition of Merrill Lynch & Co. The completion of the payments would enable Bank of America to reduce part of government involvement in its affairs....

Bank of America Corporation (BAC) and Wells Fargo & Co. (WFC) said on Wednesday that they will start accepting California state-issued IOUs from customers as deposit, which both banks had stopped accepting in early July. According to the State Treasurer, these actions by Bank of America and Wells Fargo would make it easier for many people and businesses to deposit IOUs. To conserve declining cash during its recent budget crisis, the state had issued the IOUs, or registered warrants, in July at a coupon rate of 3.75%. California started issuing IOUs to taxpayers, vendors and local governments on July 2. Through Monday, the state had issued 457,238 IOUs totaling more than $2.37 billion. Banks, which had first refused to take part in the delayed payouts, began to participate once California assured that it would start redeeming the warrants earlier than anticipated. Wells Fargo ...

In order to address the key problems of the current financial crisis and restore the economy, the Obama Administration introduced the Home Affordable Modification Program (HAMP) earlier this year. The program has pledged $75 billion to retain the homes of 3 to 4 million Americans by preventing avoidable foreclosures. According to the program, mortgage servicers who have received federal aid from the Troubled Asset Relief Program (TARP) need to modify the loan terms to help the housing loan borrowers avoid foreclosures. As part of their role, the servicers requires to lower monthly payments for borrowers at risk of default by lengthening repayment terms, lowering interest rates and forbearing outstanding principal, along with other methods. Also, servicers can receive a $1,000 fee for each modification completed under the program. According to the National Mortgage News, Bank of America Corporation (BAC) is the biggest U.S. mortgage servicer, ...

The banking unit of Wells Fargo & Co. (WFC) has been accused by an Illinois homeowner of illegally reducing the size of customers' home equity lines of credit by undervaluing customers' houses. Home equity lines of credit allow homeowners to borrow against their homes up to specified limits. Home equity lines of credit are similar to credit cards, as in both the facilities customers have a credit limit and can continue to borrow money until the limit has been reached. Once a portion is paid off, it again becomes accessible to borrow. But home equity lines of credit are backed by a borrower's property, whereas credit cards are unsecured. The suit alleges that Wells Fargo of using unreliable computer models that wrongly valued home prices too low to justify cutting the size of customers' loans. Michael Hickman filed the lawsuit seeking class action status for ...

Inflation-Proof Savings Account Could Pay 100% “Interest” this Year Euro Pacific Capital President Peter G. Schiff has identified a savings account that could yield 100% interest between now and the end of the year. It’s much safer than a regular account, and fully insured by Lloyd’s of London. Since every dollar of your savings is fully backed by gold bullion held in specialized vaults outside of Zurich, you could easily double your money as gold prices rise. And that means it’s a great way to protect your money from inflation, a falling dollar, geopolitical instability and even government stupidity! Go here for Schiff’s complete report.

By Bob Blandeburgo

Associate Editor

Money Morning

Prices for single-family and condominium homes in the second quarter fell by a record 15.6% and 19.8% year-over-year in the United States, mainly due to foreclosures.

While the data taken on a national average may be disheartening, the …

[Editor's Note: After more than a year of chaos and controversy, some of the leading U.S. banks saw their stock prices soar during the second quarter. As part of its mid-year forecast series, Money Morning examines the outlook for U.S. banks for the rest of this year. To see earlier stories from our mid-year forecast series, please click here.] By Martin Hutchinson Contributing Editor Money Morning

Can U.S. bank stocks continue their winning streak?

In February, I analyzed the top 12 U.S. banks to determine whether they really needed $1.5 trillion in taxpayer-provided bailout capital. I concluded that only a few of those banks seemed to be in any danger of collapse, and actually recommended several.

Policymakers and the market later came to agree with me: The Standard & Poor’s 500 Financial Index has more than doubled from its March low and several bank stocks have posted triple-digit …

On July 10, 2009, according to a report by the Congressional Oversight Panel, (created by Congress under the Emergency Economic Stabilization Act of 2008 to oversee the Troubled Asset Relief Program [TARP]) the Treasury decided to sell stock warrants back to recipients of TARP funds at a 34% discount on their fair-market value. The Treasury intends to take such action as the warrants provide opportunity for taxpayers to participate directly in the increase in share prices of recipients.   The Congress initiated the Troubled Asset Relief Program (TARP) in late 2008 to even out the financial system. During that time, Congress authorized $700 billion to cure the financial turmoil and decided that taxpayers should have the opportunity to share in the potential upside if the banks returned to profitability.   To verify whether the valuation of the warrants by the Treasury maximizes the taxpayers' investment in the companies, the ...

Fifth Third disposes majority stake in processing unitOn June 30, Fifth Third Bancorp (FITB) sold a 51% stake in its processing business to Advent International, the leading global buyout firm. The deal is valued at $2.35 billion, before any valuation adjustments.The deal was announced in March this year. Fifth Third will retain the remaining 49% stake in the new company and will also keep its credit card issuing business, including retail credit card and commercial multi-card services.We are encouraged with this transaction, as it will enable Fifth Third to focus more on its core business while boosting its Tier 1 common equity.Fifth Third will realize a pre-tax gain of around $1.7 billion or $1.0 billion post-tax on the transaction. Approximately $1.2 billion will be contributed from this transaction to the bank's Tier 1 equity. ...

It takes more than a globally competitive economy to have a sound banking system. For the third straight year, the United States finds itself at the top of the Global Competitiveness Index (GCI), published by the World Economic Forum (WEF) as part of its annual Global Competitiveness Report.

“Once the global economy emerges from the current financial crisis, which it will, the countries that do well on our index are those that are best prepared to bounce back and perform well in the longer term,” Jennifer Blanke, director of the WEF’s global competitiveness network told The Financial Times.

And the United States is at the top. That’s the good news.

The bad news is that the safety of U.S. banks dropped to 40th this year from 26th in the WEF’s 2007 – 2008 report.

“Despite rising concerns about the soundness of the banking sector and other macroeconomic

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