From Boing Boing…..

Kanjorski: “The Treasury opened its window to help. They pumped a hundred and five billion dollars into the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts, and announce a guarantee of $250,000 per account so there wouldn’t be further panic and there. And that’s what actually happened. If they had not done that their estimation was that by two o’clock that afternoon, five-and-a-half trillion dollars would have been drawn out of the money market system of the United States, would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed.”

The government it still able to prevent these things from occurring because people still have faith in the Government. What happens when people lose that faith?

Edit: Some discussion of this over at Felix Salmon’s blog.

The Roving Cavaliers of Credit by Steve Keen is this week’s essay of the week. It provides a good critique of the ideas underlying the neo-classical ideal. Its failure is that it implicitly falls into the fallacy (made more explicit in Steven Keen’s other writings) that since the emperor has no clothes, the pretender must therefore be well dressed. The one does not follow from the other.

From Bloomberg…..

California Governor Arnold Schwarzenegger can order thousands of state workers to take two unpaid days off a month to cut $1.4 billion from the budget, a judge ruled.

Superior Court Judge Patrick Marlette in Sacramento, California, today ruled in favor of Schwarzenegger in a lawsuit brought by employee unions seeking to block the furloughs. Schwarzenegger said yesterday that he would lay off workers to achieve the savings if he lost in court.

From Mercury News….

California counties are throwing another wrinkle into the state’s cash crisis as Gov. Arnold Schwarzenegger and legislative leaders try to agree on a way to erase a $42 billion budget deficit.

Several counties are considering some form of tax revolt—either filing lawsuits or delaying tax payments to the state—because the governor has proposed withholding payments to them for as long as seven months in a move to preserve cash.

Local governments already are missing out because the state has imposed a 30-day payment delay to counties. That was part of a move by the state controller to delay refunds to taxpayers, money for college tuition-assistance programs and payments to state vendors.

The Riverside County Board of Supervisors authorized staff to file a lawsuit, while elected officials in Colusa County decided to impose a 30-day delay on sending any taxes and fees it collects to the state.

From the AP….

The difference lies in the way growth is measured. Beijing uses a method that compares growth in one quarter with a full year earlier and says its economy expanded by a healthy 6.8 percent in the final quarter of 2008.

But experts say that compared to the previous three months — the system used by most other major countries — China’s growth fell to as low as 1 percent or possibly zero.

“The recent weakness is much worse than the long-term trend,” said JP Morgan economist Frank F.X. Gong. Merrill Lynch economist Ting Lu said fourth-quarter growth from the previous three months was “close to zero.”

The lower quarter-on-quarter growth figure would be in line with other indicators that show exports and manufacturing falling and weakness in investment and consumer spending.

Basically, they are saying the only reason that China is showing economic growth is because there was growth earlier in 2007.

Edit: It should be noted that the US is not a lot better when it comes to statistics. This from Dean Baker….

That may be hard to believe, but the economy almost certainly lost more jobs in January than the 597,000 job loss reported by the Bureau of Labor Statistics (BLS). The reason is that BLS imputes jobs for new firms that are not included in its sample.

The formula used for calculating this imputation is backward looking, meaning that it depends on growth in prior quarters. When the economy takes a sharp turn in either direction, as it did last fall, the imputation is likely to be too high or too low, depending on the direction of change.

From Rod Dreher…..

In the 1930s, he said, the US banking system was about half the GDP. Today, it’s 150 percent of GDP. In Britain, it’s 400 percent of GDP.

What’s more, in the 1930s America was nation that loaned money to the rest of the world. Now it is a nation that borrows from the rest of the world. This is one of many reasons why it is wrong to look to the 1930s for lessons on what to do today even if you buy Keynesian economics.

From Macro Man….

At the same time, US sovereign 5 year CDS surged 15 bps yesterday to 86 bps. To put that in perspective…..it’s where Citigroup CDS was trading exactly one year ago. Remarkably, Macro Man could only find two other countries with double-digit CDS ratings: Japan (58), Germany (59), and France (69). Was it really only a decade or so ago that Japan’s loss of a AAA rating amidst massive borrowing made waves? Now markets are essentially saying that the Japanese government (facing a massive demographic challenge) is the best creditor in the world.

CDS = Credit Default Protection.

To be honest, I don’t really understand this. As I understand it, the CDS contracts don’t cover inflation. Do people really believe that the US will default rather then inflate? I suppose it could happen.