From the Times….

Across the whole of the UK, 49% of the economy will consist of state spending, while in Wales, the figure will be 71.6% – up from 59% in 2004-5. Nowhere in mainland Britain, however, comes close to Northern Ireland, where the state is responsible for 77.6% of spending, despite the supposed resurgence of the economy after the end of the Troubles.

Even in southern England, the government’s share of spending is growing relentlessly. In the southeast, it has gone up from 33% to 36% of the economy in four years.

The state now looms far larger in many parts of Britain than it did in former Soviet satellite states such as Hungary and Slovakia as they emerged from communism in the 1990s, when state spending accounted for about 60% of their economies.

Large-scale layoffs in the northeast will mean a rise in benefit payments. Newcastle-based Northern Rock was nationalised last year and has shed 1,500 jobs. Nissan announced three weeks ago that it was to cut its workforce in Sunderland by 1,200.

This explains a lot of the stories that come out of Great Britain. When the state has a Soviet size share of the GDP it will have Soviet type powers.

But such sniping aside, this shows how the economic health of Great Britain is dependent on the economic health of the government of Great Britain. Much of the money that sustained the government came from oil and gas revenues from the North Sea and the financial services industry in the city of London. Now that energy prices are falling around the world and the financial services industry is getting hammered, who is going to fund the government of Great Britain?

From a Freddie Mac 8-K Filing…..

Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation) is in the process of preparing its financial statements for the fourth quarter of 2008 and the year ended December 31, 2008. Based on preliminary unaudited information concerning its results for these periods, management currently estimates that the Federal Housing Finance Agency, in its capacity as conservator of Freddie Mac (Conservator), will submit a request to the U.S. Department of the Treasury (Treasury) to draw an additional amount of approximately $30 billion to $35 billion under the $100 billion Senior Preferred Stock Purchase Agreement (Purchase Agreement) between Freddie Mac and Treasury. The actual amount of the draw may differ materially from this estimate as Freddie Mac goes through its internal and external process for preparing and finalizing its financial statements.

The Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to the Company after any quarter in which the Company reports a negative net worth (that is, the Company’s total liabilities exceed its total assets, as reported in accordance with generally accepted accounting principles). The amount of the estimated additional draw described above reflects management’s current estimate of the impact of operating losses as well as other items that have a direct impact on the Company’s net worth in the fourth quarter. The Company previously drew $13.8 billion under the Purchase Agreement in November 2008, following its release of results for the third quarter of 2008. For further information, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Conservatorship — Entry Into Conservatorship and Treasury Agreements — Overview of Treasury Agreements” and “— Legislative and Regulatory Matters — Conservatorship and Treasury Agreements — Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant” in Freddie Mac’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008, filed with the SEC on November 14, 2008.

They took $13.8 billion in the third quarter and they think they are going to need 30+ billion in the fourth quarter. That is a more then 100% increase. Even if the rate of increase slows down, I don’t think the original 100 billion is going to be enough.

(h/t Calculated Risk)

From Seeking Alpha….

Prices for food in U.S. grocery stores jumped 6.6% last year – the biggest spike since 1980 – underscoring yet again that inflation is a much bigger problem than government officials, or most economists, say it will be.

Of all food categories, prices for cereal and baked goods hit U.S. consumers the hardest, zooming 11.7% in 2008 over 2007. Prices for meats, poultry, fish and eggs gained 5.1%. Fruits and vegetable rose 3.4%, while dairy products advanced 2.7%.

It was the second straight year U.S. consumers were forced to pay a lot more for their groceries. In 2007, food prices at supermarkets rose 5.6%. Prices rose only 1.4% in 2006.

The article goes on to make the argument that inflation is still a problem and the government does not measure it properly.

From Clusterstock……

The news that Merrill Lynch paid out $15 billion in bonuses is sure to ignite new questions about the wisdom of bailing out Wall Street. Merrill Lynch took $10 billion from the TARP, allegedly to fill holes in its balance sheet. But instead of using that to repair its financial health, it simply put the money into the pockets of its employees. There is no way to defend this disgusting payout.

The media made a big deal about Republicans attempts to make the tax system less progressive. But they have been largely silent about the fact that Democrats and Republicans have united to give taxpayer money to people who are filthy rich. Personally, I would have just preferred that we make the tax system less progressive.

I would prefer rich people who are taxed at the same rate as I am to rich people who are on welfare.

From Market Watch…..

The bank probably needs to maintain a tangible equity ratio of 6% to 9%, he said. “It would take over $80 billion of new common equity to reach even the low end of the range, and we believe Bank of America simply is not generating sufficient capital internally in this environment to put a dent in this size capital hole.”

This is on top of all the other money already given to the Bank of America. And this is only the tip of the iceberg. Bank after bank has been posting horrendous losses. As this Calculated Risk post shows, bank stocks are getting killed. And they were already worth almost nothing. Wall Street is waking up to the fact that the banking system is insolvent and there is panic on the street.

What is really scaring people is that prime mortgage defaults have started to shoot up just when banks had thought they had worked through their sub prime losses. As more and more people lose their jobs it is only going to get worse. And if prime defaults are going up, the Agencies are really going to start needing cash. People are just beginning to see how much this is going to cost.

Edit: I forgot to add in this from the New York Times….

Stock markets had one of their worst Inauguration Day losses in more than a century, skidding more than 4 percent. Financial companies plunged more than 15 percent, their biggest one-day drop in nearly two decades, as investors worried that the troubles facing the country’s biggest banks might be larger and deeper than anyone had thought.

Even after record corporate write-downs and a $700 billion bailout to shore up the financial system, banks are still reporting huge losses, lining up for new government lifelines and cutting their profit outlooks.

The stock market drooped so much that the Dow is now below 8,000 if anyone cares about such meaningless number anymore.

From later on in the same New York Times article comes the money quote….

“At the end of the year, we saw some light at the end of the tunnel,” said Art Hogan, chief market strategist at Jefferies & Company. “Unfortunately, we found out that the light at the end of the tunnel was a train.”