The Big Zero

For the first time ever, four-week US Treasury bills sold at zero percent interest. Zero.

Investors fearful of deflation and riskier assets scrambled to hand over cash to the US Treasury in return for no interest at an auction Tuesday, while some T-bill rates fell below zero in the market.

Pressures on fund managers to stock up on the safest possible assets in advance of year-end book-balancing added to the bid for government securities, traders said.

The U.S. Treasury Department said it sold four-week bills at a high rate of 0.000 percent, a level never before seen, in a $30 billion auction.

When Treasury bill rates turn negative it shows that investors are so concerned about the safety of other assets that they are willing to effectively pay the U.S. government a fee to look after their money.

Rates for three-month bills in the market fell below zero, according to fixed-income trading platform Tradeweb.

"There is just a continuing flight to safety with money that needs to be invested," said Lou Brien, a market strategist with DRW Trading Group in Chicago. "Money funds want it to be invested rather than under the mattress, which is continuing to push rates lower."

The view that the Fed will use other methods in addition to cutting short-term interest rates to ease monetary conditions drove prices of long-dated Treasuries prices higher as well, sending yields on those maturities toward five-decade lows.

This is a classic liquidity trap scenario, where even with dirt cheap interest rates (and the Fed is expected to cut rates to 0.50% next week) and massive liquidity in the form of bailout billions has been pumped into the system, the economy is stalled out like a car with a flooded carburetor. Banks are hoarding cash rather than loaning it out because short term investments are way too volatile and dangerous. The practical upshot is that the economy grinds to a halt and deflation sets in.

We're headed down that road. The interest rate in this country will effectively be zero soon if not zero already. As such, the next step is deflation, and deflation means anybody in a lot of debt now will be only in worse debt later. That situation describes basically every company and most American families out there.

This is turning into a textbook disaster. Remember, it wasn't inflation that caused the Great Depression, but a catastrophic deflationary spiral. Prices dropped. Wages dropped as a result. People were laid off. Demand for goods dropped, causing prices to drop more...and the cycle continued for most of the 30's. It took us almost 20 years and World War II to recover from it.

We're heading into another situation like that now.

And One Last Thing

Blagojevich has no intention of resigning over this.

Illinois Gov. Rod Blagojevich has no plans to resign after being indicted on a raft of corruption charges, including the alleged "sale" of former Sen. Barack Obama's Senate seat.

Blagojevich's attorney Sheldon Sorosky told reporters outside the courthouse where the governor was arraigned that the governor has no plan to resign.

"He didn't do anything wrong," Sorosky told reporters. "A lot of this is just politics."

Blagojevich should be in the office Wednesday, his attorney added.

This will get a whole lot worse, and quickly.

Blagogate Is Obama's Whitewater

I'm glad I'm not the only one who sees this whole Blago/Rezko baloney as Obama's Whitewater. Digby weighs in:

The minute I heard about Fitzgerald's press conference, I knew this would follow shortly: Questions Arise About the Obama/Blagojevich Relationship. That's Jake Tapper, not making any charges but bringing up all kinds of cross currents in Illinois politics to suggest that there are "questions." And all over TV they are talking about "corrupt Chicago politics," which is being splashed onto Obama.

It's natural that Obama and many of his staff have crossed paths with the players in this scandal. But according to Lynn Sweet of the Tribune, who has followed Obama for some time and is not a sycophant, says the campaign put a mile between itself and Blagojevich, not even allowing him to speak at the Democratic convention. They are not close.

I don't know if this will go anywhere. At this point, I think there's just too much news and too many problems for a phony scandal to have any legs. But, as I wrote almost a year ago, these Chicago shennanigans have elements of a perfect right wing smear by association if they have the energy to launch one and the press decides it's sexy enough.

Count on it. Taking down Obama is a national sport among the Village. Every single one of them wants to be the next Bob Woodward and write their own ticket for the next 35 years. You can absolutely count on story after story trying to tie Obama to Blago and "the Corrupt Chicago Machine."

The same people who ignored Bush scandal after Bush scandal are the same ones who will spend four years trying to gotcha Obama over this.

As I've said time and time again, if you thought the Village hated the Clintons, wait until you see what they do to Obama.

It starts today. The press honeymoon is certainly over. They know they can turn this into 24/7 Blagogate and control Washington once again...and that's exactly what they are going to do.

Blago-Sphere

Blagogate continues to get more and more interesting by the hour. First of all, Obama is looking more and more like the Good Guy here.

Marcy Wheeler catches local Chicago press reporting that Rahm Emanuel may have tipped off federal investigators that Gov. Rod Blagojevich (D) was engaging in corrupt acts. Jack Conaty, a Chicago reporter for the local Fox affiliate, said on-air that Rahm Emanuel might have been responsible for causing federal investigators to act quickly to apprehend Blagojevich this morning:

CONATY: We did receive a tip this morning that perhaps all of this came together so quickly because the Governor may have reached out to Rahm Emanuel, the president-elect’s chief of staff, in attempting to leverage filling the Senate seat. And it may have been Rahm Emanuel who tipped the scale and made this move as quickly as it did.

Second of all, Emanuel may have been cooperating with the Feds all along.

Third of all, the person Blago was going to appoint if Obama didn't play ball, the so called "Senate Candidate 5" is looking more and more like Jesse Jackson, Jr.

Capitol Fax's Rich Miller updates the state of the speculation on the identity of "Senate Candidate 5," the public official who -- from the complaint -- appears to be in the most jeopardy, aside from Blagojevich and Harris. "Senate Candidate 5." He thinks its either Emil Jones or Jesse Jackson, Jr., though it's conceivable that others would fit the description.

Though Fitzgerald warned us not to cast aspersions based on Blagojevich's version of other people's words, this is the damning quote: “We were approached ‘pay to play.’ That, you know, he’d raise me 500 grand. An emissary came. Then the other guy would raise a million, if I made him (Senate Candidate 5) a Senator.”

Here's what we know. Candidate 5 is:

-"publicly reported to be interested in the open Senate seat"

- not who Blagojevich thought Obama wanted

- not someone with whom, by November 10, Blagojevich had a "long, productive discussion"

- someone with fundraising wherewithal who could produce something "tangible up front"

- someone Blago was "getting a lot of pressure" not to appoint

- someone with whom Blago had "a prior bad experience...not keeping his word"

The complaint also says that on November 10, Blagojevich told an advisor to leak to the Sun-Times's Michael Sneed that Blagojevich "is seriously considering Senate Candidate 5 for the open Senate seat" and that the advisor agreed to call the Sun-Times to leak the story, apparently false, that Blagojevich end of the conversation Advisor A agreed to call the Sun Times columnist to leak the story had a “long, productive discussion” with Candidate 5.

One thing I do know is that this is far from over.

It's In The Blag

Illinois Governor Ron Blagojevich has been arrested by the Feds for, among other things, trying to sell Obama's vacated Senate seat to the highest bidder.

Illinois Gov. Rod Blagojevich was arrested on criminal charges on Tuesday, including trying to sell the U.S. Senate seat being vacated by fellow Democrat President-elect Barack Obama, federal prosecutors said.

Blagojevich was also accused of threatening to withhold substantial state assistance to the Tribune Company in connection with the sale of the Chicago Cubs' baseball home Wrigley Field "to induce the firing of Chicago Tribune editorial board members sharply critical" of him.

The 51-year-old Blagojevich and his chief of staff, John Harris, were charged in a 76-page federal indictment with conspiracy to commit mail and wire fraud and solicitation of bribery. Both were taken into custody at their homes in Chicago.

In Illinois, the governor selects a successor when there is a mid-term Senate vacancy. Obama resigned from the Senate soon after winning the Nov. 4 presidential election.

Blagojevich allegedly was caught on court-authorized wiretaps during the last month.

He was seeking a "substantial" salary for himself at a nonprofit foundation or union affiliated organization, a spot on a corporate board for his wife, promises of campaign cash, as well as a cabinet post or ambassadorship in exchange for his Senate choice, the FBI affidavit added.

The man prosecuting Blagojevich? None other than Chicago crimefighter US Attorney Patrick Fitzgerald (yes, THAT Patrick Fitzgerald).

Fitzgerald said the case required "unusual measures" because of actions Blagojevich was expected to take soon, including filling the vacant Senate seat. "There were a lot of things going on that were imminent," he said.

"We were in the middle of a corruption crime scene and we wanted to stop it," Fitzgerald said.

He said Blagojevich was looking to pull $8 million in funding for a children's hospital after the hospital's chief executive officer did not give a $50,000 contribution to the governor's campaign.

Also, Fitzgerald said, it was expected that Blagojevich would soon sign into law a bill that would direct a percentage of casino revenue to the horse racing industry -- a bill supported by someone who contributed $100,000.

"To let that bill be signed, to me, would be very, very troubling," Fitzgerald said.

One big question now is whether Blagojevich retains the right to name Obama's successor if he remains in custody or even under indictment. The answer is yes, according to Fitzgerald.

Jay Stewart, executive director of Chicago's Better Government Association, agreed. He said Blagojevich retains the right to fill the senate vacancy until he's out of office, which won't happen unless he quits or is removed from office by impeachment.

At a press conference Tuesday, Illinois Sen. Dick Durbin, a Democrat, said he wants the Illinois legislature to act quickly to pass a law setting a special election to fill Obama's seat, in order to prevent Blagojevich from making a tainted appointment or there being a lengthy vacancy in the Senate.

"No appointment by this governor under these circumstances could produce a credible replacement," Durbin said.

This is going to be Obama's Whitewater. The GOP and the right wing noise machine will be screaming about this for Obama's entire career. How much did he know about the scheme? All evidence so far appears to be "zero", but that won't stop them from looking for or creating links where there are none.

Way to go, Blago. Democratic Stupidity at its finest. New tag: Blagogate.

Out Of The Frying Pan...

...into the mortgage default. The newest report out this week from the Office of the Comptroller of the Currency shows that when the feds stepped in an intervened with mortgage payments to keep people in their houses, a large percentage ended up back behind in their mortgage payments again, sometimes within only a few months.

The OCC found that 58 percent of borrowers who received a modification in the first quarter have since missed at least one monthly payment. In the more recent group of borrowers who received modifications in the second quarter, 51 percent have missed a payment. The finding was based on data provided to the OCC and its sister regulator, the OTS, by 14 of the nation's largest banks, which account for about 60 percent of the mortgage market.

There's every reason to believe this is representative as a whole of the mortgage situation in the US. As the housing market continues to collapse these problems will continue until the housing market hits bottom, and there's no reason to believe that will happen anytime soon.

StupidiNews!

• Illinois suspends all activity with Bank of America in an unprecedented show of solidarity with laid off workers.
• The Fed has authorized China Construction Bank to operate in the US.
• Dems are pushing a $15 billion automaker bailout plan that would effectively nationalize the industry.
• Sony plans to lay off 16,000 Japanese workers as that company struggles with collapsing sales.
• Suspicious but harmless powder-filled letters were sent to at least six Governor's offices yesterday.

The Badness Continues

The WSJ has a pretty good article on the India-Pakistan situation that's worth a read if only for this truly scary theory at the end: (h/t TPM)

India has also upset many inside Pakistan by demanding the government hand over 20 terror suspects, many of whom appear to have no link to the attack in Mumbai, Western diplomats say. Acquiescing to India has now become politically problematic, say analysts.

"I don't think there is any Pakistani leader who wants to be seen giving in to demands by India. That would cause problems," said a retired army general who declined to be named. "No one wants to see one of our boys handed over to an Indian court. There would be no justice there."

A top security official has also said the military would be willing to fight India alongside Pakistani Taliban leader Baitullah Mehsud, the man accused of assassinating Mr. Zardari's wife, former Prime Minister Benazir Bhutto, last December. Mr. Mehsud has denied involvement.

The Taliban, too, says it would suspend its fight against Pakistani soldiers to join them a conflict with India.

"Any aggression will be resisted jointly by Pakistan's armed forces and the Mujahideens," said Maulana Faqir Mohammed, a top figure in the Tehrik-e-Taliban Pakistan, in a statement sent to reporters. "We would raise a force of 15,000 tribal Taliban to fight on the side of Pakistan's armed forces. We would infiltrate 500 suicide bombers into India to cause havoc there."

Yeah, that's good news there. The Pakistani Taliban and Pakistani Army fighting India together.

Nothing bad would come from that.

StupidiNews!

• 2 in 3 Americans say they have cut back this year on holiday spending.
• Newspaper publisher Tribune Media could be filing for bankruptcy as early as this week.
• Has Britain's "Surveillance Society" gone too far?
• Another Senator is calling for GM's CEO Rick Wagoner to go as part of any bailout deal.
• A new survey finds more than half of adults and 50% of women over age 18 are gamers.

It's Bad Now And It Will Get Worse

Certainly Obama believes things are going to continue to get worse, but just how bad? One estimate from the UK has November's massive job losses as the good times...and 2009 could see job losses of twice that.

As many as a million American jobs could be lost every month by next spring as businesses struggle to raise capital in financial markets consumed by fear, according to a new analysis.

November was the worst month in the US labour market since the oil crisis of 1974, as more than 500,000 US workers were laid off, according to official figures released on Friday.

But Graham Turner, of consultancy GFC Economics, says the rising cost of corporate debt is now flashing a red warning signal that far worse is to come over the next few months and job losses are heading for levels last seen in the 1930s Great Depression.

Corporate bond yields have rocketed since the credit crisis began as investors flee risky assets in search of safe havens such as US Treasuries. That effectively means many firms are being forced to pay eye-watering interest rates to borrow funds.

Turner says when the gap between the yield on high-risk company bonds and US Treasuries widens sharply, unemployment tends to shoot up - and current credit conditions are pointing to a doubling in the pace of layoffs, to more than a million workers a month, by spring.

'The correlation is holding up all too well,' he said. 'It's very disconcerting.' He added that the pace of layoffs already happening in the US 'is indicative of panic'. During the 1970s oil crisis the panic was relatively short-lived, he says. 'But the worry now is that this will just roll on and on.'

Sustained job losses of that magnitude would indeed be catastrophic for America and the world. Consumer spending would drop like a stone, and retail level goods and services would evaporate, taking the economy with it. We're talking a deflationary dealth spiral scenario, one where millions of jobs would vanish and the US would face shortages, riots, and chaos. The effective unemployment rate is 12.5% now...it could end up twice that, with one in four working age Americans either out of work, under-employed, or no longer seeking a job because there will be none to have. The Happy Face economic press has so badly underestimated this crisis that the reality is more and more likely to be an "effective depression" where the entire global economy is restructured...and when it is, America will no longer be on top.

There is no visible bottom to this abyss. 2009 is going to be one of the worst years in American history, bar none.

Out Of Gas

The Kroog weighed in on the Big Three today, and the results were not pretty.

Nobel economics prize winner Paul Krugman said Sunday that the beleaguered U.S. auto industry will likely disappear.

"It will do so because of the geographical forces that me and my colleagues have discussed," the Princeton University professor and New York Times columnist told reporters in Stockholm. "It is no longer sustained by the current economy."

Krugman won the 10 million kronor (US$1.4 million) Nobel Memorial Prize in economics for his work on international trade patterns. Some of his research on economic geography seeks to explain why production resources are concentrated in certain locations.

Speaking to reporters three days ahead of the Nobel Prize ceremony, Krugman said plans by U.S. lawmakers to bail out the Big Three automakers were a short-term solution, resulting from a "lack of willingness to accept the failure of a large industry in the midst of an economic crisis."

And I happen to agree with him. As I've said, there's nothing that can really be done to solve the US auto industry's problem that doesn't involve the nationalization of the entire industry, which is just unacceptable given there's plenty of car companies out there. Even in the short term if the automakers survive, they simply will die long term as people won't buy cars from a bankrupt company. Obama will be forced to do it, as losing millions of auto jobs is even more unacceptable, and the price autoworkers will have to pay is to deunionize completely and take brunt of the concessions. The GOP will demand it and will get it. The only other option is to lock out foreign autos completely in a bout of nationalist protectionism.

It's not the auto industry that's going to vanish first, it's the unions...and with it the last of the blue-collar middle class in this country.

Big Bucket Of Scary

Now this...this is a bad thing.

India's foreign minister accused Pakistan on Sunday of trying to dodge blame over the Mumbai attacks' Pakistani origins by leaking a story about a hoax call to Pakistan's president that set off diplomatic panic.

Pakistan's Dawn newspaper reported on Saturday that Pakistan had put its forces on high alert after a caller pretending to be Indian Foreign Minister Pranab Mukherjee threatened President Asif Ali Zardari while the attacks were still going on.

"I can only ascribe this series of events to those in Pakistan who wish to divert attention from the fact that a terrorist group, operating from the Pakistani territory, planned and launched a ghastly attack on Mumbai," Mukherjee said in a statement released on Sunday.

Pakistan insisted the call came from an official and verified phone number in India's foreign ministry.

New Delhi has demanded Islamabad take swift action over what it says is the latest anti-India militant attack emanating from Pakistani soil.

At least 171 people were killed during the three-day assault last week across India's financial capital, which has imperiled the improving ties between the south Asian nuclear rivals.

Officials from "third countries" called to inform Mukherjee of the hoax call, he said. He did not name them, but Dawn said the caller was a worried U.S. Secretary of State Condoleezza Rice, who was in both capitals last week to ease tensions.

"It is, however, worrying that a neighboring state might even consider acting on the basis of such a hoax call," he said.

Yeah, that's right. A hoax call after Mumbai nearly led to an open conflict between two nuclear powers. And the really scary part is it still might do so.

Think about it. If you're Al-Qaeda, what better way to destabilize Pakistan's government and take control of their nukes than to force the Pak military hunting you out to the Kashmir border to defend against India, then hit the capital Islamabad while everyone's worried about external threats and announce you're in charge?

Double G Goes Double Barrel

Nobody on the left does righteous indignation like Glenn Greenwald. When he latches on to The Stupid, he doesn't let go. Ever. Today's poor schmuck in his jaws is former Clinton OMB official Matt Miller, who rightfully gets both barrels.

Matt Miller, a Senior Fellow with the Center for American Progress (CAP) and former official in the Clinton OMB, has an Op-Ed in The Washington Post decrying the "kiss-and-tell" books written by top presidential aides once they leave the White House, and he singles out as examples the "tell-all" books written by George Stephanopoulos and Scott McClellan (whose name is repeatedly misspelled throughout the Op-Ed). Miller doesn't merely want former officials who write such books to be stigmatized and scorned, though he does want that. Far beyond mere disapproval, he actually wants to vest presidents -- or at least the new President -- with the formal legal power to block publication of these books in the first place:

Just as mergers and marriages that flourished on handshakes and vows had to turn to coarser arrangements once the stakes of break-up became high, the politician-aide relationship now needs its contract. In other words, it is time for the political prenuptial. Barack Obama should simply require key advisers and officials to sign a binding contract of confidentiality as a condition of employment. Aides should pledge not to disclose anything they see until, say, five years after their boss leaves office.

That is an atrocious idea. For one thing, it's hard to see how enforcement of these silencing contracts could be permitted in light of the First Amendment. And I doubt that Obama, for appearance reasons if nothing else, would take this proposal seriously. But those matters aside, the thinking behind this proposal is common among Beltway insiders and reveals much about the ways of Washington.

The attribute that defines Beltway culture as much as anything else is obsessive, gratuitous secrecy. The vast bulk of what takes place of any consequence occurs away from the public eye. Even laws which Congress enacts are proposed, negotiated and written behind closed doors with lobbyists and operatives. By the time these bills are even known to the public, let alone openly "debated," their outcome is a foregone conclusion. Floor "debates" and Congressional votes are pure theater, empty rituals with no purpose other than to ratify pre-ordained outcomes that were determined in secret.

Presidents in particular already possess a vast arsenal of weapons to prevent transparency, from the virtually unfettered power to classify to borderline-omnipotent investigation-quashing tools such as the state secrets and executive privileges. As Radley Balko detailed in his recent article urging the Obama administration to renounce claims of executive privilege except where genuine national security secrets are jeopardized by disclosures, these powers have grown so rapidly over the last decade that Presidents can now maintain an almost impenetrable wall of secrecy around virtually everything they do. CAP's own blog, ThinkProgress, just recently cited a report documenting "that by almost every measure, government secrecy is rising."

As always, Double G is a good read, and of course he has a good point here. Obama is breaking down that wall of secrecy, as is VP-elect Joe Biden. There's no way the opposite would be acceptable after eight years of Preznitman From Preznitland.

A Bit Less Democratic Stupidity Today

Indicted Congressman "Dollar Bill" Jefferson of Louisiana is gone.

Nine-term Democratic Rep. William Jefferson, who has been battling scandals and a federal indictment for the past three years, lost his bid for re-election on Saturday.

Republican challenger Anh "Joseph" Cao, an attorney and community organizer, defeated Jefferson in the 2nd Congressional district race. He will become the first Vietnamese-American elected to Congress.

With 100 percent of precincts reporting, Cao had almost 50 percent of the vote to Jefferson's 47 percent.

The 2nd Congressional district, in and around New Orleans, is mostly African-American and heavily Democratic, and Jefferson appeared to be favored to win re-election going into the election.

"The people of the second district were able to transcend party, transcend race," Cao said after claiming victory Saturday night.

Jefferson was as crooked as they come, frankly. Also, I was kind of getting sick of him being the guy thrown in the face of every Democrat that somehow proved that with this one scuzzy guy, the entire Democratic party was just as corrupt as the entire GOP.

Which is fine. The Wingnuts will move on to Jack Murtha next and scream he's the most corrupt guy in Washington.

Obama's Jobs Plan

With Friday's hideous job numbers out signaling truly bad times ahead, Saturday was certainly the right time for Obama to announce his job creation plan.

President-elect Barack Obama on Saturday revealed five parts of his plan to save or create 2.5 million jobs by 2011, and said he will push for immediate action by Congress when he takes office in January.

Obama wants to make public buildings more energy-efficient; repair roads and bridges; modernize schools; increase broadband access; and ensure health care uses the latest technology.

"Our government now pays the highest energy bill in the world," he said in the weekly Democratic Radio Address.

"We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won't just save you, the American taxpayer, billions of dollars each year. It will put people back to work."

In addition, he said, "It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the Internet, every child should have the chance to get online."

"In addition to connecting our libraries and schools to the Internet, we must also ensure that our hospitals are connected to each other through the Internet."

"These are a few parts of the economic recovery plan that I will be rolling out in the coming weeks. When Congress reconvenes in January, I look forward to working with them to pass a plan immediately.

"We won't do it the old Washington way. We won't just throw money at the problem.

"We'll measure progress by the reforms we make and the results we achieve -- by the jobs we create, by the energy we save, by whether America is more competitive in the world," Obama added.

Indeed, the size and scope of Obama's national stimulus pacakage is growing by the day. And with state after state calling for long-needed Federal infrastructure investment and consumer consumption drying up quickly, it can't come soon enough.

I'm hoping this means that Republicans will be overwhelmed by the popularity of this and will have no choice but to concede, after all, politicians who vote against job creation for actual voters tend to get removed from office by those voters.

We'll see.