Now, if you assume that those with capital are logical, that they can discern between a good investment and bad (which is logical since they accumulated money in the first place), then it must be illogical for the government to step in and take their place. If you understand that then you understand how we got in such a mess: the government decided that everyone should have access to cheap loans when savers, savvier investors who have accumulated money, said no.

I also said the the government would, ironically, somehow garner even more power with their policy errors. So socialism is growing and socialism means no future growth....at best.

The second point above touches on the hope that the markets (a loose term at best these days) have that the government will begin ramping up the GSEs to once again supply free money to the mortgage market. This is not going to happen. The biggest loss estimate to taxpayers from the GSE bailout I have seen is $100 billion. I can tell you now that this is a tenth of what is likely to occur.

Once again, everyone is falling for rhetoric. Well, not everyone. The two big Bills, Bill Gross and Bill Ackerman, have already shamelessly begged for their share of the giveaway. They know this is all they are likely going to get. The markets, if they are allowed, will soon see that the losses are mounting and the government will be caught up in shoring up those losses instead of creating new ones.

The third point can only be tried so many times without the inevitable devaluation that everyone knows is coming. But the next devaluation (after the deflation cycle which is just now going from the denial phase to the "get me out" phase) will be a doozy. This is when the Fed plays its last card (probably not for a year or two) when the deflation cycle reaches bottom and they must monetize all debt.

I wish I could stay around for Minyans to describe that situation. But my time has passed. As we go into this next stage of deflation I am hunkering down here in Japan. I have given you my best advice; some good, some not so good, but hopefully you have learned some of the market's mechanisms.

Just remember, if there's a market left, to always be concious of risk and understand that the question to focus on is not so much the What but the Why of things. Only the why will tell you what will happen.