From Bloomberg…..

The U.S. Treasury faces historic financing demands from a weakening economy and the added costs of a $700 billion Wall Street rescue program, the department’s top domestic finance official said today.

“This year’s financing needs will be unprecedented,” said Anthony Ryan, the Treasury’s acting undersecretary for domestic finance, at a Securities Industry and Financial Markets Association conference in New York, where he was a last-minute substitute for Treasury Secretary Henry Paulson.

Ryan’s borrowing outlook comes after Treasury officials spent much of the past month publicly praising the rescue plan’s virtues. The Treasury needs to sell debt to raise money for the new initiatives and also cope with a weaker economy, two factors analysts say may push the country’s budget deficit to more than $1 trillion for the current fiscal year.

Considering the original forecast was for 400+ billion dollar deficit, that is quite a jump.

From Naked Capitalism….

The cause is the break down of the world commodity trading system. For the past few weeks Andy and I have been reporting in our respective dailies on the difficulties being faced by importers and exporters of basic materials in getting access to bank finance to fund trades. For example, Andy wrote about South Korea’s request for immediate aid support from the US to fund food and fuel imports, I discussed how the lack of trade finance was reducing the volume of coal shipments into Rotterdam and was affecting the volume of US grain exports. When you come to think about it, if banks are reluctant to lend to each other because of perceived counter-party risk, why are they going to lend to a small trader from Asia, Africa or even Europe. We know of banks that have rejected letters of credit from other banks – and we are aware of banks that have simply refused to pay out on letters of credit because they claimed they did not have access to the funds. Without a working trade finance system the global market is going to break down……….eventually.

And that’s where we are at the moment. The reason that spot iron ore prices in India have collapsed – more than halving in three months, is because Chinese demand has vanished but it has vanished because of a combination of real demand destruction and apparent demand destruction caused by the inability to finance cargoes. Its the same for other bulk commodities, industrial metals, coal, oil and even food. The slump in global demand for basic materials is real but it is not as bad as the BDIY would make you believe.

From the Economist….

UNTIL recently Japanese banks had largely avoided the agonies of the credit crunch that had caused such difficulties in much of the rest of the world. Now the misery has well and truly come to Tokyo. The culprit is not toxic derivatives and swaps, but ordinary shares held by banks in Japanese companies. These cross-shareholdings, a peculiar feature of Japanese capitalism, are having pernicious effects. As share prices fall, banks are force to revalue their assets, which in turn reduces their capital ratios. The result is a need to raise capital quickly.

In the past four trading days, the Nikkei 225-share index has tumbled by 23%. On Monday October 27th the index plunged by 6.4% to 7,162.90, the lowest level in 26 years. Mitsubishi UFJ Financial Group (MUFG), Japan’s biggest bank, plans to raise as much as Â¥990 billion ($10.6 billion) by issuing new common shares of perhaps Â¥600 billion and preferred securities of Â¥390 billion. Mizuho Financial Group and Sumitomo Mitsui Financial Group are said to be planning their own capital increases.

The government is scrambling to help out. It is poised to announce a set of new measures, including spending perhaps Â¥10 trillion to buy shares in companies that the banks hold (in an off-market transaction, so their values do not fall further). This was a tactic used by the Banks’ Shareholdings Purchase Corporation to respond to a banking crisis in 2002. The government may also request that pension funds and life insurance firms buy equities to support the market, though whether they would respond remains to be seen.

Spengler’s Gambling, Economic Growth and Imagination is this week’s essay of the week.

From Paul Kedrosky….

The following more or less supports what some have been saying for a while -– that major banks in the U.S. and the U.K. will end up being entirely nationalized before this crisis is over –- but it’s still a striking way of looking at the data. The gist: Government recapitalization and other fund-raising has largely been in service of banks’ prior subprime losses, while corporate and consumer loans are just starting to hit bank balance sheets. It won’t take much to tip banks over into insolvency again.

What follows is a chart that you all should take a look at. Alphaville has more.

From This Is Money…

The depth of the recession was revealed today as truckmaker Volvo admitted demand across the Continent has crashed by 99.7% as it took orders for just 115 new lorries in the last three months.

From the Economist….

Britain’s economy contracted by 0.5% (an annualised rate of 2%) in the third quarter, according to a preliminary estimate. The drop, far worse than forecasters had expected, was the first quarterly decline in output since 1992 and the biggest since 1990. The pound immediately sank below $1.56, an alarming fall. A week earlier it was trading above $1.73 and could be exchanged for $2 as recently as July.

The economic news from the euro area was scarcely better. An index of manufacturing industry based on a survey of purchasing managers slumped from 45.0 to 41.3, its lowest level since it began in 1997 (a reading below 50 is consistent with falling activity). The corresponding index for services fell to 46.9.