Previously, on FINTRUTH...

The summer is coming to an end so it's time to start blogging agan.

Previously on FINTRUTH: After second quarter results in April and May showed how banks didn't lose billions of dollars because they have undervalued toxic assets on their books, FINTRUTH's author said this is a crock of shit and stopped blogging. The reason for these remarkable results was because the Financial Accounting Standards Board caved in to pressure from Congress (and special interests) and changed mark-to-market rules to mark-to-model.

That means, they can value the assets based on what they think they will be worth in the future and not on their current value...right now. Today. In fact, some people think they will never reach the value they have...that they will always be considerably worth less than they are.

In any case, after that, I realized the summer would be full of fantasy and fairy tales that other reputable bloggers will be writing about. Hey, I don't get paid for this so I'm not wasting my time writing for this thing when I have my real job to think about.

However, the urge hit me to start again, because we're closing in on a time frame for reality to hit again and, as the movie title states, Reality Bites. (Wasn't crazy about the movie, just for the record, but wanted to use the title).

Let me mention that the blogger, http://evilspeculator.com/, a day trader who does these charts that I cannot understand at all, says:

Fall/Winter 2009 is going to be a lot of fun for the bears - get ready.

I don't understand these charts at all, and it gives me a headache to look at them, but one thing I did understand was that the "evil.speculator" said in May that the Dow would hit 9900...possibly 10,000 by Fall...and darn if he doesn't seem to be on track in his prediction. So, that said, if his previous comment is any indication....look out.

Nouriel Roubini, professor of economics at the Stern School of Business at New York University, wrote an article in yesterday's Financial Times, August 23, The risk of a double-dip recession is rising.

I found this segment particularly interesting because it presents one reason as to why he is forecasting a double-dip recession. But he's not the only one forecasting it.

With commercial real estate's short-term bleak future, more "trickle-down" gloomy economics will take place.

Roubini here, however, points out a possible "no-win scenario" that the Fed and Treasury face.
There are also now two reasons why there is a rising risk of a double-dip W-shaped recession.

For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.

On the second point, LT government bondholders, primarily China, might punish policymakers. That's an uncertainty, but President Obama has scheduled a trip to China in the near future. What do you think they're going to talk about over a couple of beers?

Star Trek II: Wrath of Khan fans understand that Captain James T. Kirk did not believe in a "no-win scenario." He rigged the Kobyashi Maru test so he was able to defeat the "no-win scenario." If Roubini's analysis proves untrue, and Obama gets us out of this economic mess unscathed, is he also rigging the game. After all, this is reality and even Mr. Spock understands that "physical laws cannot be changed." Neither can economic laws and principles.

For that reason, I'll go with a double-dip recession. Fact is, you can't keep printing money and expect China to keep buying bonds forever.

Andy Xie, an over-the-top economist but a smart MIT grad, says in Boom and burst: Don’t be fooled by false signs of economic recovery. It’s just the lull before the storm:

The final crash will come when the Fed raises the interest rate to 5 per cent or more. Most think that when the Fed does this, the global economy will be strong and, hence, exports would do well and bring in money to keep up asset markets. Unfortunately, this is not how our story will end this time. The growth model of the past two decades - Americans borrow and spend; Chinese lend and export - is broken for good.

Whether it's broken or not depends on the U.S. consumer--unemployed--9.4 percent; part-time or discouraged person not looking for full-time work--16 percent; or worried about becoming unemployed and spending within their means while paying off debt--everyone else.

How long does that last? I don't know. How long will banks stay insolvent? How long until their toxic assets increase to their appropriate value. My guess is six to 10 years. Next question: will this model continue for the next six to 10 years? Will China continue to produce for a U.S. that is not buying its products for another five years?

Let's hope Obama brings the Heinekin. He'll need it.