Farrell: Don't Trust The Government

Do not trust the government seems to be the mantra of the possible players in the TALF (Term Asset Backed Loan Facility) program. This, remember, was designed to loan money out to financial institutions so they would buy short term- up to three years- IOU's backed by auto loans, student loans, credit card receivables, etc. But the program is off to a miserable non-start with only $1.7 billion being bid for this week. The government had hoped for hundreds of billions before too long.

But with TARP money having been forced on some banks to be followed by rule changes for TARP recipients, why would you get involved with the government? Secretary Geithner's comments recently that they will oust execs of poorly performing banks will drive people out of TARP, away from TALF, and across the bridge from Detroit to Toronto! While it's understandable from a populist viewpoint, I think President Obama better refocus on the financial situation here at home and get the message out that partnership is better than divisiveness if we are to get what to me are innovative and possibly very successful programs underway.

Soleil's Lyle Gramley issued his regular monthly economic outlook and sees Q1's GDP down almost the same as last quarter. Specifically, he sees a negative 5.6% annual rate of decline followed by an easing of the situation in Q2 to a -1.1% fall and a positive 1.4% by the fourth quarter. That view was reinforced by the recent consumer credit data.

Consumer credit fell by $7.5 billion in February (to $2.56 trillion). Consumer credit had grown over 6.5% annually for the last 10 years and has fallen at a 1.8% pace the last seven months. Consumer spending has been almost 70% of economic activity and if the personal wallet is closed, GDP will suffer. The positive of that is we can expect the savings rate to continue to grow rapidly. The benefit of that is more of our deficit can be self funded.

TheWall Street Journal reported Wednesdaythat inventories have fallen so far so fast that the outlook for a production rebound, and consequent uptick in GDP, looks good. I think that will eventually be the case but not immediately. Wholesale inventories - which are about 25% of all business inventories - fell 1.5% in February. That is the sixth month in a row of decline and the biggest downtick since the early 1990's. The inventory to sales ratio fell to 1.31 from 1.34. While it is moving in the right direction it is still way up from the all time bottom of 1.06 set mid last year. It looks like Lyle will be right that it will take until the end of the year before we have a positive GDP quarter.

Enough of that stuff. Let's give a "stupid stamp" to the Florida man who was arrested for choking his wife while he was wearing one of those "I love my marriage" tee shirts. Another "stupid stamp" goes to the owner of a British nightclub who wrote the police to deny allegations her joint was rife with drug use. Police tested the letter and found it "covered in cocaine."