I may not have learned much, but one thing is that a closed trade is over, for better or for worse, and there’s no sense in beating yourself up about money left on the table. By all means mistakes are a learning opportunity (either you earn or you learn) but self-flagellation is unprofitable.

In other financial trivia, if you know anything at all about computers you know who Donald Knuth is. If you are a programmer you probably have a well-thumbed and Post-It tagged set of the “Art of Computer Programming” on your bookshelf. Sadly, modern financial fraud has put an end to Prof. Knuth’s practice of sending out a check for $2.56 to anyone who finds an error in his work.

Unfortunately, though, he’s been forced to stop because of bank fraud. “The system that I’ve been using has worked well for almost forty years; but recently I have had to close three checking accounts, and the criminal attacks on those accounts have caused significant grief to my bankers,” says Knuth.

Governor Schwarzenegger has gone public with the unsurprising news that the California state deficit is ballooning. New York state ditto. We have built up an overload of grossly overpaid bureaucrats. Instead of cutting services, eliminating jobs and raising taxes, as the Governator suggests, how about all state employees take a 10% pay cut? That would more than fix the problem and still leave them way overpaid by private sector standards (excepting banking  executives, of course, but that’s another rant).

On the city front, bankrupt Vallejo is having its $316,000 city manager take a 10% cut (oh the pain) and all employees except firefighters and police will take two unpaid days of vacation. Of course, considering that the police and firefighters are 80% of the budget, that’ll have a big effect, right. Clearly these drastic measures will put the sinking ship back on an even keel right away. Not. At some point, the ridiculous over-compensation of firefighters and, to a lesser extent, other city employees will have to be addressed.

Of course, the elephant in the room is the federal government. The dollar is tanking now that the carry trade panic seems to be over as people worry about the enormous federal deficit (7% of GDP according to The Economist newspaper)

This all threatens to add up to a deficit of at least $1 trillion, or nearly 7% of GDP, this fiscal year, a figure that is likely to force the next president to postpone some of his more ambitious proposals.

…

The next president will no doubt find deficits at 7% or more of GDP sobering enough. Without a plan for cutting that high figure back once the financial crisis and the recession pass—and with the inexorable climb in Medicare and Social Security costs as the baby-boomers retire now under way—investors may need to be compensated much more than they are now to keep on buying America’s debt.

The Fed has started buying commercial paper. Presumably this helps account for today’s renewed enthusiasm for stocks.

Companies sold $232 billion of commercial paper yesterday, the most in five years, with 29 percent maturing in more than 80 days, according to Fed data. That’s the biggest percentage on record and compares with a previous high of 13 percent in 2002.

Fortunately, I was lightly long. The clue was the weakness in the yen, which turned into pervasive weakness for the dollar during the course of the day. This could mean that the liquidation selling is mostly over. So then, the US dollar should go lower, bonds lower as well, but stocks and commodities should go higher. Although not in a straight line. But the weakness in the Canadian dollar is not helping my numbers and some rally there would be more than welcome. By Friday, please, so the monthly exposé is not so embarrassing. All you sideline sitters who report monthly numbers, you could be helping instead of just sitting there, you know.

The chart is the adjusted monetary base, currency plus bank reserves. Mr Bernanke is true to his word. The helicopters are in motion.

I have long since prognosticated that we will have ZIRP (Zero Interest Rate Policy, a term coined by the Bank of Japan) here in the US. (BTW, that prognosis from Feb. 2006 was not too far off, was it?)

People are now talking about this possibility, even at this week’s Fed meeting. Personally, I think that it is a bit soon but hey, I could be wrong. I think the price  inflation vs. deflation argument is pretty much over, though. Now it is just a matter of waiting for the numbers, but the asset price deflation is so violent that it is hard to imagine that labor prices alone will prevent overall price deflation being reported.

Peter Schiff writes about the prospects for a new, larger stimulus package. I agree completely with what he says, it is a theme that I have mentioned repeatedly.

After a decade long spending orgy, market forces are finally trying to restrict consumer spending and dampen credit. But the stimulus looks to provide a new source of funds after savings, income, and credit have been exhausted. Our imbalanced economy is in desperate need of retrenchment, but stimulus plans will effectively hold the firemen at bay while throwing gasoline on the flames.

It is not so much that economists are bad people, but that they do not know what they are doing. Much of what they “know” is simply wrong. Economists failed to forecast the 1930’s depression. They failed to forecast this one. How can their actions, well-intended though they may be, fix a problem they do not understand? That, in  fact, was caused by their bad advice? Why would anyone accept solutions from someone who did not see this coming?

Don’t think we’re in the early stages of depression? Then check this out:

Volvo said it received 115 order bookings for heavy trucks in Europe in the quarter, down from 41,970 trucks a year earlier.

That’s not recession. That’s collapse, down 99.7%.