By Martin Crutsinger, AP Economics Writer

The financial rescue operation will force the federal government to borrow an unprecedented amount of money as the budget deficit climbs to record heights, a top Treasury Department official said Tuesday.

Anthony Ryan, Treasury‘s acting undersecretary for domestic finance, said the administration back in July was forecasting that the deficit for the current budget year, which began on Oct. 1, would hit a record $482 billion. He said that forecast did not include all the government’s efforts since then to deal with the worst financial crisis since the 1930s.

“This year’s financing needs will be unprecedented,” with all the rescue programs now in place, Ryan said.

Ryan said those borrowing efforts will need the address numerous government initiatives: The $700 billion rescue program passed by Congress on Oct. 3; efforts by the Federal Reserve to bolster banks’ balance sheets which have required it to utilize Treasury‘s borrowing resources; and the need of the Federal Deposit Insurance Corp. for resources deal with a rising number of bank failures. Read more….

By Les Christie, CNN

Home prices fell in August for the 25th consecutive month and prices in 10 major markets plunged a record 17.7% year over year, according to a key index of real estate values released Tuesday.

The S&P Case-Shiller Home Price 10-city index dropped 1.1% for the month. The 20-city index recorded a record year-over-year decline of 16.6% with a 1% fall in August.

The indexes compare the sale prices of the same homes each year to determine price trends and are considered one of the most accurate home price gauges. Read more….

By Jui Chakravorty Das and Kevin Krolicki, Reuters

Analysts perceive GM, Chrysler and rival Ford Motor Co (F.N) as driven to the brink of failure by a combination of management missteps, slowing global growth and problems in credit markets.

General Motors Corp (GM.N) has asked the U.S. government for roughly $10 billion in an unprecedented rescue package to support its acquisition of Chrysler LLC from Cerberus Capital Management (CBS.UL), sources familiar with the talks said.

The government funding would include roughly $3 billion in exchange for preferred stock in a merged automaker, according to one of the sources, who was not authorized to discuss the matter publicly.

The U.S. Treasury Department is considering a request for direct aid to facilitate the merger and a decision could come this week, sources familiar with the still-developing government response said on Monday.

The request for federal aid is being led by GM. The automaker’s chief executive, Rick Wagoner, was in Washington in recent days to lobby administration officials.

Cerberus has not been involved in any of the lobbying efforts, a source familiar with the matter said.
Read more….

By Christopher S. Rugaber, AP Economics Writer

Consumer confidence plunges to lowest on record in wake of financial turmoil, layoffs

WASHINGTON (AP) — Consumer confidence plunged to its lowest on record in October, a private research group said Tuesday, as stock markets dropped sharply and companies laid off workers.

The Conference Board said the consumer confidence index fell to 38, down from a revised 61.4 in September and significantly below analysts’ expectations of 52.

That’s the lowest level for the index since the Conference Board began tracking consumer sentiment in 1967, and the third-steepest drop. A year ago, the index stood at 95.2.

Wall Street, which has come to expect bad news on the economy, took the report in stride. The Dow rose 2.5 percent in early trading. The broader S&P 500 index rose 2.2 percent. Read more….

By Robert Morley, the Trumpet

It has gained in relation to the once mighty euro and the Swiss franc. It has humbled the British pound, the Canadian dollar, and the Russian ruble. It has made the Asian tigers look like pussycats.

Surprising as it may be, the above sentences refer to the U.S. dollar. The greenback just experienced its best week of gains in 16 years against the currencies of six major U.S. trading partners. Against the sterling, the dollar had its strongest week since 1992 when investor George Soros was credited with breaking the pound. Among the significant currencies, only the Japanese yen is powering higher, reaching a 13-year high against the dollar. In fact, the dollar has soared approximately 30 percent over recent weeks.

Once again, the greenback appears to be everyone’s favorite currency. But is it a sign of the end of the economic crisis and the return of U.S. economic health as one might be led to believe?

Typically the value of the dollar is a good barometer as to the health of the underlying economy. Over the past several years, the dollar has fallen, accurately indicating the overall deterioration in U.S. economic health.

Today, America’s biggest financial institutions are insolvent and failing. The government is spending billions propping up everything from banks and insurance companies to auto manufacturers. Commercial real estate is following residential real estate down the sinkhole, consumer spending is drying up, and the global economy, led by America, is on the verge of stalling. Yet, against that backdrop of negative indicators, the dollar is soaring. What gives? Read more….

By Dean Baker, Guardian

European investors are extraordinary creatures. Usually investors try to make money for themselves or their clients. But, when it comes to the US, European investors never tire of losing money. While this has benefits for those of us who live in the US, it is nonetheless hard to understand.

The penchant of Europeans to throw money away on hare-brained schemes dates from the early years of the nation. In the 1830s, Europeans lost millions of dollars investing in the big canal boom of the era. No doubt their bets would have paid off well if it had not been for railroad. Of course 20 years later they lost another fortune in railroad speculation.

The great thing about European investors is that they never learn. In the late 1990s they got caught up in the irrational exuberance of our tech bubble. And it wasn’t just small-time speculators who caught the fever. In 2001, Deutsche Telekom, the largest telephone company in Germany, bought Voicestream, a start-up wireless phone company, for $21bn. Five years later, it couldn’t find a buyer at one-third this price.
Read more….

By Eric deCarbonnel, iStockAnalyst

For the last few years, the dollar has been in a bear market due to the horrible fundamentals backing the currency (the huge debt mountain, unfunded liabilities in the tens of trillions, rampant money printing by the central bank, and the huge federal budget deficit). However, in the last three months the US dollar has diverged from its fundamentals and rallied due to investors fears about deflation.

Because they see parallels between today’s credit crisis and the Great Depression, investors are pilling into the dollar and treasuries. Since the results of 1929′s housing and credit collapse was an increase in the purchasing power of the US dollar (deflation), investors have come to believe that purchasing power of the dollar is also going to rise today. Based on this belief, investors are selling assets in other currencies and buying dollars, which explains why foreign markets and currencies are crashing at the same time right now. These investors are then taking their dollars and plowing them into the “safest” investment, short term treasuries. Investors are willing to accept the near zero interest rate on these short term treasuries because they expect the dollar’s purchase power to rise. Unfortunately for these investors, the purchasing power of the dollar is not going to increase. Read more….

By Amey Stone, BloggingStocks

As if the economic recession wasn’t hard enough on Americans, seeing the government spend billions to bail out Wall Street has made it all even harder for the average person to take. Yes, we all want to avoid global financial collapse. But the way the government rescue of the banking industry is playing out seems to be adding insult to injury.

Here are eight recent examples:

Wall Streeters can still expect big bonuses this year
When the government agreed to bail out Wall Street, the goal was to provide funds to shore up banks’ capital bases so they would start lending again. It wasn’t to help them fund the bonus pool. But estimates run that as much as $70 billion will get paid out in bonuses to bankers this year. That amount equals 10% of the $700 billion bailout. Sure, the bonuses will be smaller than last year and fewer people will get them, but there will still be lots of six-figure payouts to go around.

A Goldman hot shot got the job of doling out all that money
Neel Kashkari, a 35-year-old former Goldman Sachs whiz kid who believes in free markets, is getting the job at the Treasury Department of dispersing the government’s $700 billion rescue. Is he really the right person for the job? Gawker has been merciless, publishing his high school yearbook page that features a Ferrari and lyrics from the rock band Rush. But lots of observers have wondered if a seasoned vet with a little more political experience might be a better fit for the task at hand. Read more….

By Chuck Butler, Daily Pfennig

Good day… And a Terrific Tuesday to you! Well… We saw some profit taking in the currencies yesterday, which meant a mini-rally in non-dollar currencies for the first time in what seems to be a month of Sundays! At one point in the day, the euro had added more than 1-cent to its figure dragging sterling, Swiss, Canada and a host of others along. But, that didn’t last in the overnight markets, and we’re right smack dab back on square one where we left off yesterday.

This morning we’ll listen in on former Fed Chairman Volcker’s speech, which ought to be a good one, don’t you think? I mean, this is the guy that said a couple of years ago that the U.S. could see a currency crisis… And didn’t it? OK, it’s not now, but turn your clocks back to June, and you’ll see what I’m talking about here. Volcker is a “hero” of mine in how he took on the inflation of the late 70′s early 80′s and didn’t dance around the dance floor with it… He whipped it into shape, and then left it all in good shape for Big Al Greenspan… We all know what happened after that!

We’ll also see Consumer Confidence for the first part of this month, which is expected to take the Nestea plunge from and index number of 59.8 to 52! You know me, I can’t ever, for the life of me, figure out how Consumer Confidence can even be this high! But then, if every one worried about the stuff I worry about, this would be a dull place to live, eh? HA!

The S&P Case/Shiller Home Price Index will also print this morning, so expect more rot on the vine with home prices here… And finally… The Fed begins a two day meeting today… The Fed’s FOMC begins today with a rate announcement expected tomorrow. What do you think it will be… A 25 BPS cut? Or 50 BPS cut? I’m thinking that it will be 50 BPS… I’ve always kidded that I wondered what the Fed Heads do for two days before announcing their rate moves… I think they play Battleship! By Joe you’ve sunk my Battleship! HA. Read more….

Kazakh iron ore miner ENRC will cut output in the fourth quarter, as it reassesses its production plans to reflect the global financial situation.

Read more….