March comes in like a lamb, the saying goes, and roars out like a lion.  This year, the only thing roaring is the crowd, looking for blood.  And the news keeps getting worse.  It’s now no longer if we’re in a recession, but when it will start qualifying as a full-blown depression.  This may be the month where it all comes apart.

News this week out of Wall Street is dismal, with Citigroup looking to cut 37,000 plus jobs and the market down big over the last few trading days.

But again, it’s the collection of data involving some of the more esoteric problems of the the economy that really signal things are much worse than they appear.
First, we have a major story breaking in the floudering muni bond sector of the market:  California is no longer insuring bonds.

The country’s largest issuer of municipal bonds, the state of California, has decided to stop using municipal-bond insurance, a huge blow to the struggling industry, CNBC has learned.

“In the current market–and given the condition of the bond insurers–it makes no sense,” Tom Dresslar, the Director of Communication for California State Treasurers Office, told CNBC. “There’s no value to the taxpayer.”

From 2003 through 2007, California spent $102 million to insure $9 billion in California General Obligation Bonds. This year, the state has spent no money on muni bond insurance for the two issues it has floated: a $3.3B economic recovery bond, and the $1.75B GO issue that will price this Wednesday.

“Bond insurance has no value,” Mr. Dresslar said.

This is the most stark indicator yet that the monolines will not make it.  California by itself is one of the ten largest economies on earth, and the state, county, and municipal governments in that state represent a massive chunk of the muni bond market, if not bond insurers’ largest single customer in the municipal sector.

If you lose your largest and most public customer for not just your company but for your entire industry, your industry as a whole will not survive without major change.

The state is not soliciting bond insurers for business and doesnt know if and when it will, Mr. Dresslar said.

The decision couldn’t come at a worse time for bond insurers, which are struggling to keep their crucial Triple A ratings after getting hit with billions of dollars of losses from insuring subprime related debt.

The Monoline Nuke countdown just went into overdrive, like one of those movie bomb timers that speeds up to a blur because the hero cut the wrong wire.  If California is bailing out of the bond insurers, you’d better believe there will be a stampede for the exits.  

Ironically, the credit rating downgrade of the monoline insurers may actually not matter if confidence and credibility in the industry is destroyed by California bailing out.  You can expect other states to do so, and do so quickly.  The same result will still be there in the end:  the loss of hundreds of billions, if not trillions, as the monolines disintegrate.

California has already said that bond insurers are literally worthless, and this is a major, major indicator that the Monoline Nuke may be imminent, if not having now been actually triggered by California’s statements.

It doesn’t help that things are rapidly spiraling out of control, and Helicopter Ben Bernanke is begging banks to write off more debt to try to spare mortgage owners.

Bernanke urged lenders to expand mortgage writedowns for borrowers whose home values have declined, saying more must be done to stem foreclosures. His remarks were prepared for a conference in Orlando, Florida.

Citigroup declined 87 cents to $22.22. Merrill Lynch & Co.’s Guy Moszkowski said he expects $15 billion of writedowns related to the company’s holdings of subprime mortgages and collateralized debt obligations and another $3 billion from leveraged loans, bad consumer debt, real-estate lending and other investments.

The New York-based analyst slashed his first-quarter estimate for Citigroup to a loss of $1.66 a share from a profit of 55 cents a share and cut his 2008 profit forecast to 24 cents a share from $2.74.

But how much more can the banks write off?  They can’t.  They’re at the limit, they’ve had to beg, borrow, and steal just to keep in positive cash reserve territory, soliciting handouts from foreign sovereign funds, the Fed’s cash auctions, and from investors.  Banks are now starting to realize that they are tapped out, and they have no more to feed the rapidly failing monolines.

The result will be a bloodbath in the financial services industry.  You’re going to see hundreds of thousands of jobs lost, and trillions of dollars vanish.

The problem is now that we’re rapidly approaching the point where no amount of wiggle room is left for the captains of industry to maneuver.  The Fed is still expected to make another dramatic interest rate cut this month, but that will only lead to the dollar falling even faster than it has been.

Despite the fact that investors are making a last ditch effort to save the monolines the short term solvency of the companies is meaningless if the long-term prospects of survival are zero, i.e. customers abandoning the industry.  The Monoline Nuke still detonates.

Across the pond, the Europeans are letting it known that a freefalling dollar won’t be tolerated any longer.

Worried euro zone policymakers pressured on Washington on Tuesday to do more to halt the dollar’s decline, a day after the U.S. currency hit a record low against Europe’s single currency.

Guy Quaden, Belgium’s representative at the European Central Bank, said in an interview on Belgian radio: “Things are becoming exaggerated.”

“It’s up to the relevant authorities to assume their responsibilities and particularly for U.S. authorities, who repeat that they are in favour of a strong dollar but who should reaffirm their words,” he said.

The Europeans are worried that the slide is getting out of hand after the dollar sank below $1.50 per euro last week.

Belgian Finance Minister Didier Reynders, attending a second day of meetings with European colleagues on Tuesday, put it less bluntly than Quaden but the basic message was the same, which Europe was counting on active U.S. help to tackle an issue which makes life harder for euro zone exporters in world markets.

“We are also happy to see the reaction in the U.S. They are also concerned about that. So it may be a first step to a good collaboration between Europe and the U.S. in this field,” he told reporters.

French Prime Minister Francois Fillon added his voice to the rising chorus of complaint, echoing similar declarations overnight at a Brussels meeting of the euro zone’s finance ministers and ECB President Jean-Claude Trichet.

“There is a problem in the relationship between the dollar and the euro,” he told French Europe 1 radio, saying exchange rate developments were partly to blame for the rising price of commodities, which from oil to wheat are soaring.

Any further interest rate cuts will only collapse the dollar, and yet without a rate cut, the economy will only grind to halt faster.  The Fed’s pretty much in a no-win situation, and nothing they can do can actually help the situation…only make it worse.

Oil, gold, and platinum have all hit record highs again this week and will only continue to rise as the world’s reserve currency continues its collapse…and then the deflationary pressures will kick in.

Meanwhile, those of us here paid in dollars and having to use them will see that the power of our dollar is going to all but evaporate…and the US economy with it.

Things are beginning to spin totally out of control now.

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