Last month’s near panic in the markets was justifiable.  But the game plan in February is that “everything’s fine.”  The financial media’s mask slipped in January due to shock.  In February, that mask is back on…due to orders from up top.

You have no further to look than the reports this weekend on Friday’s job numbers, from the message of “mixed signals”

The labor market may be weak, but that doesn’t necessarily mean the US economy is in a recession or on the verge of one.

Friday’s nonfarm payrolls report defied expectations for a modest gain by showing a decline of 17,000 in January – the first in several years. But the unemployment rate also declined, easing to 4.9% from 5%, despite predictions it would either be unchanged or edge up.

The usually important payroll and jobless data has taken on even more significance because the labor market is considered the most reliable indicator of a recession. In early January, when the government reported that the jobless rate jumped to 5% from 4.7% in December, it set off recession alarms because the rate was more than half a percentage point higher than the low  during the expansion phase of the economic cycle.

But the latest jobless rate data has fueled the conviction among some economists that the recession talk may be premature.

“One of the things that makes the recession signal `work’ is that once it is turned on, it typically stays on,” said Robert Brusca, chief economist at Fact & Opinion Economics.  “That signal is formed when the rate of unemployment rises from its cycle low by more than 0.5 (of a point). The rate needs to stay at 5% to turn that signal on and keep it on in this cycle.”

…to the downright  silly.

WASHINGTON — U.S. employment unexpectedly tumbled last month for the first time in more than four years, fueling worries that the U.S. economy which already limped into 2008 might soften further or even slip into recession in coming months.

But there were some bright spots, including a slight drop in the unemployment rate and sharp upward revision to December payroll growth, which should provide some level of support to consumer confidence and spending in coming months.

Still, the data support expectations for further policy easing by the Federal Reserve, which has already cut rates massively to stem the downturn.

Meanwhile, U.S. manufacturing activity mounted an unexpected recovery in January. However, construction spending took its third tumble in a row during December as the housing and government sectors dragged overall outlays to a sharper-than-expected drop.

I love that.  “Unexpectedly tumbled”.  That’s funny.  The reality is the unemployment rate fell a tenth of a percent because the unemployment rate doesn’t count people who stopped looking for work.  You can tack on about a one-third bump in that rate of 4.9%, to about 6.5-7.0%, to take into account the number of folks who are actually out of work in America.

I certainly don’t find these lowered numbers to be “unexpected”.  I’ve been expecting them for the better part of two years now.  I work for a bank in the Cincinnati area.  Many of the customers of and employees that work for that bank are in the Rust Belt, particularly Ohio, Michigan, West Virginia, and western Pennsylvania, and they also have about a hundred branches in Florida.

And the mortgage business in those five states has been nothing but pure horror for the last year.  The guys on the ground there in those places where foreclosures or unemployment (and sometimes both) are well above the national average all want to talk about how bad things are:  Detroit, Cleveland, Columbus, Grand Rapids, Huntington, Traverse City, Tampa, Orlando, Jacksonville, Pittsburgh…these places are fucked.  I’ve seen the numbers.  They live the numbers.  I talk to people who live and work there on a daily basis from the bank tellers to the bigwigs, from the IT drones to the investment gurus.  They know they’re in trouble.

The reality is those cities and states have been in recession for a year or more now.  The rest of us have simply been behind the curve.

Now that curve is catching up with a vengeance.

Everything’s starting to fall apart now.  The linchpin of the US economy was the belief that home prices would never fall.  They fell.  The subprime collapse is going to take the rest of us with it.

The Bush administration has accelerated a 30-40 year collapse of the US economy and the derivatives market to ten.  Home prices are collapsing and will continue to fall.  People can’t use them as ATMs anymore.  They were tapped out and had to.  Stuff now won’t get bought.  Companies will lay off workers.  People will lose jobs and their homes.  The cycle will repeat.

January 2008 should be remembered as the month when it all came unglued.  It’s only going to get worse.

Soaring energy and raw material costs, a falling dollar and new business rules here are forcing Chinese factories to increase the prices of their exports, according to analysts and Western companies doing business here.

The rise was a modest 2.4 percent over the last year. But even that small amount, combined with higher energy and food costs that also reflect China’s growing demands on global resources, contributed to a rise in inflation in the United States. Inflation in the United States was 4.1 percent in 2007, up from 2.5 percent in 2006.

Because of new cost pressures here, American consumers could see prices increase by as much as 10 percent this year on specific products — including toys, clothing, footwear and other consumer goods — just as the United States faces a possible recession.

In the longer term, higher costs in China could spell the end of an era of ultra-cheap goods, as well as the beginning of China’s rise from the lowest rungs of global manufacturing.

Economists have been warning for months that this country’s decade-long role of keeping a lid on global inflation was on the wane.

“China has been the world’s factory and the anchor of the global disconnect between rising material prices and lower consumer prices,” said Dong Tao, an economist for Credit Suisse. “But its heyday is over. We’re going to see higher prices.”

As bad as the inflation rate has been in this country, the so called “core” rate is about to jump.  Wal-Mart and Target are going to see prices jump big time.  With the dollar in free-fall those rises in Chinese import prices will only be magnified.  The hyper-inflation of the dollar will make that magnification exponential.

People who work at Wal-Mart won’t be able to afford to shop at Wal-Mart.  Think about that for a while.  Think about what that’s going to do to the economy in 2008.  Think about gas prices at $3 a gallon in January and what those prices will be in July.  We’re talking about people who very literally won’t be able to afford to drive to work.

Now think about the monoline nuke that’s coming on the other end of that spectrum.  The monolines are on life-support.

Eight large banks have joined forces to seek a rescue plan for MBIA Inc, Ambac Financial Group Inc and other troubled bond insurers battered by the global credit crunch, CNBC television said on Friday, citing a person familiar with the talks.

In early trading, shares of MBIA rose $1.46, or 9.4 percent, to $16.96, while Ambac rose $1.34, or 11.4 percent, to $13.06. The cost of protecting MBIA and Ambac debt against default fell, indicating that investors see less risk.

The $2.5 trillion bond insurance industry is struggling with mounting losses and capital shortfalls, jeopardizing the “triple-A” credit ratings that insurers such as MBIA and Ambac depend on to function normally.

CNBC said the eight banks are Barclays Plc, BNP Paribas, Citigroup Inc, Allianz’s Dresdner Bank, Royal Bank of Scotland Group Plc, Societe Generale, UBS AG and Wachovia Corp.

They’ve got no choice or they’ll go under.  As it us, these banks can’t afford to bail out anybody else.  When you’re writing off tens of billions of bad debt, how can you bail out a company that could be liable for  hundreds of billions in bad debt?

You can’t.  Not for long, anyway.

We’re facing a market implosion on one side and an inflation explosion on the other.  Either one would put us into a deep recession.

Both, at the same time, will put this country under.

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