The latest figures show construction spending was down, but not out, in the month of November. Total spending declined 0.6% against market expectations for a decline of 1.4%. October's decline was also revised to just -0.4% from a previously reported drop of -1.2%.

The residential market continues to be a lead anchor, with private residential spending down 4.2% -- the biggest decline since July's -6.2% reading. Private nonresidential spending, on the other hand, increased 0.7% after a 0.4% decline in October. Within the private nonresidential sector, spending on lodging was up 0.7%, spending on office property rose 0.9%, spending on transportation projects jumped 3.2% and spending on power facilities climbed 5.3%.

The problem? This nonresidential strength simply isn't going to last. After all, as the New York Times noted yesterday, vacancy rates are rising, rents are falling, and commercial real estate financing conditions are much tighter now than they've been in years. A brief excerpt:

"Vacancy rates in office buildings exceed 10 percent in virtually every major city in the country and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for troubled lenders.

"With job cuts rampant and businesses retrenching, more empty space is expected from New York to Chicago to Los Angeles in the coming year. Rental income would then decline and property values would slide further. The Urban Land Institute predicts 2009 will be the worst year for the commercial real estate market "since the wrenching 1991-1992 industry depression."

I can count on one hand the number of economists who were expecting the holiday shopping season to be a good one. But even the generally grim consensus forecasts apparently weren't grim enough, according to early sales results. Here are some more details from the Wall Street Journal ...

"Price-slashing failed to rescue a bleak holiday season for beleaguered retailers, as sales plunged across most categories on shrinking consumer spending, according to new data released Thursday.

"Despite a flurry of last-minute shoppers lured by the deep discounts, total retail sales, excluding automobiles, fell over the year-earlier period by 5.5% in November and 8% in December through Christmas Eve, according to MasterCard Inc.'s SpendingPulse unit.

"When gasoline sales are excluded, the fall in overall retail sales is more modest: a 2.5% drop in November and a 4% decline in December. A 40% drop in gasoline prices over the year-earlier period contributed to the sharp decline in total sales.

"But considering individual sectors, "This will go down as the one of the worst holiday sales seasons on record," said Mary Delk, a director in the retail practice at consulting firm Deloitte LLP. "Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"

"The holiday retail-sales decline was much worse than the already-dire picture painted by industry forecasts, which had predicted sales ranging from a 1% drop to a more optimistic increase of 2.2%."

We got a two-fer today: Data on both new and existing home sales for the month of November. So what did the numbers from the Census Bureau and the National Association of Realtors show?

NEW HOMES:

* New home sales dropped 2.9% to a seasonally adjusted annual rate of 407,000 from 419,000 in October (originally reported as 433,000). That was slightly worse than the forecast for a reading of 415,000, and the lowest sales rate since January 1991 (401,500). Sales were off 35.3% year over year.

* The raw supply of homes for sale continues to decline due to aggressive cutbacks in home construction. It fell 7% to 374,000 from 402,000 in October. But the "months supply at current sales pace" indicator of inventory only inched down to 11.5 from a revised 11.8 in October, which was the current cycle high (and the highest level ever according to my data, which goes back to 1963).

* The median price of a new home fell 11.5% from a year ago -- to $220,400 from $249,100. That was the second-biggest drop for the cycle behind the 12.7% YOY drop in March 2008.

EXISTING HOMES:

* Sales tanked 8.6% to a seasonally adjusted annual rate of 4.49 million units from a revised 4.91 million in October. That compared with an average estimate of 4.93 million and 5.02 million units a year earlier. It's the lowest level on record for the data series, which includes single-family homes, condos, and coops. Single-family only sales, at 4.02 million, were the weakest since July 1997 (3.88 million).

* The inventory of homes for sale inched up to 4.203 million units from 4.198 million. The "months supply at current sales pace" indicator of inventory rose to 11.2 months from 10.3 in October. That ties the cycle high set in April 2008.

* Home prices dropped 13.2% to $181,300 from $208,800 a year earlier. That is the biggest decline on record. Home prices are now at their lowest level since February 2004 ($180,900).

At the risk of sounding like a broken record player, the latest housing market figures still paint a grim picture. Both new and existing home sales fell in November. For-sale inventory readings remain at or near all-time highs. Home prices continue to slump, with double-digit declines on both the new and existing sides of the ledger.

Treasury and the Fed are doing all they can to lower mortgage rates and stem foreclosures. But they're having a very tough time fighting the simple law of supply and demand. The housing market remains dramatically oversupplied, despite very sharp cutbacks in new home construction. Moreover, demand remains weak due to slumping consumer confidence, tighter lending standards, and rising unemployment.

Bottom line: It's going to take even more time and even lower home prices to get back to a healthy stake of equilibrium in housing. Anyone looking to Washington for a quick fix to this downturn is going to be disappointed.

It's another "Fed day" today, with the FOMC's two-day policy meeting set to wrap up later and the results to be announced at roughly 2:15 eastern. Market betting is that the Fed will cut rates by 50 basis points to a record-low 0.5%. But one has to wonder if that really matters. The "effective" federal funds rate, determined by actual trading in the market, was just 18 basis points yesterday.

The real question is how will the Fed further explain or define its new strategy of quantitative easing and flooding the banking system with reserves. Or as Bloomberg explains things this morning ...

The Federal Reserve may today reduce its main interest rate to the lowest level on record and prepare for one of the boldest experiments in its 94-year history: using its balance sheet as the key tool for monetary policy.

"The Fed’s Open Market Committee will probably cut the benchmark rate in half, to 0.5 percent, according to the median of 84 forecasts in a Bloomberg News survey. The central bank may also signal plans to channel credit to businesses and consumers by further enlarging its $2.26 trillion of assets.

"Chairman Ben S. Bernanke plans new steps to combat the credit crunch and prevent the worst recession in a quarter century from turning into a depression. The danger is the Fed’s credibility could be hurt if policy makers don’t clearly communicate a new strategy of manipulating the supply of money, at a time when FOMC members have diverging views on the subject.

"We expect the FOMC to leave the policy outlook open- ended,” said Louis Crandall, chief economist at Wrightson ICAP LLC, the world’s largest broker of trades between banks, in Jersey City, New Jersey. “The FOMC may have no choice but to muddle along for a while longer” because “there is no sign that a consensus on a new approach has begun to emerge,” he said.

"Investor speculation that the Fed will ease monetary policy today pushed yields on 10-year Treasury notes to the lowest since 1954. The dollar traded near a two-month low against the euro and was close to its weakest level in 13 years versus the yen."

The AP expands a bit further on how this Japan-like strategy of quantitative easing works, in case you aren't familiar with the mechanics ...

"Bernanke says the Fed is weighing other ways to aid the economy given that it can lower the funds rate only so far -- to zero.

"For example, the Fed could buy longer-term Treasury or agency securities on the open market in substantial quantities. This might lower rates on these securities and help spur buying appetites.

"A Fed program announced late last month to buy $600 billion in debt and mortgage-backed securities from mortgage giants Fannie Mae and Freddie Mac already has helped pushed mortgage rates down.

"By boosting the quantity of money in the financial system, the Fed has engaged in so-called "quantitative easing" to provide economic relief. The Fed's balance sheet has ballooned to $2.2 trillion, from close to $900 billion in September, reflecting efforts to mend the financial system."

Things keep getting curioser and curioser over at the Federal Reserve. According to the Wall Street Journal, the Fed is now considering issuing its OWN debt for the first time ever. As you probably know, the Treasury is the primary institution that issues U.S. government debt. More below on this very odd development ...

"The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.

"Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.

"Fed officials have approached Congress about the concept, which could include issuing bills or some other form of debt, according to people familiar with the matter.

"It isn't known whether these preliminary discussions will result in a formal proposal or Fed action. One hurdle: The Federal Reserve Act doesn't explicitly permit the Fed to issue notes beyond currency."

There was an interesting column at the Wall Street Journal site today about the long-term implications of all this borrowing and spending the country is doing. It talks about how President-Elect Obama will have to balance the demand for bailout money from everyone and anyone against the need to ... eventually ... get the deficit under control. An excerpt:

"Being Santa Claus is fun. Delivering the credit-card bills later is much less fun. And so it will be for U.S. President-elect Barack Obama. He will get to play Santa Claus at the outset of his term, telling people they can spend hundreds of billions of dollars in the name of stimulus. Later, of course, he'll have to play Scrooge, telling the country that the bill has come due.

"The challenge for the Obama team is making sure Americans in general, and Congress in particular, remember that both roles lie ahead for the new president. The task, in the words of one senior Obama aide, is to make sure that people don't think the model for stimulus spending in coming months is "backing in the Brink's truck and opening up the door."

"More broadly, Mr. Obama's team needs to figure out whether there are steps it can take at the outset to build its credibility on fighting deficits in the long run, even as it accepts them in the short run. Such measures are possible and would help calm financial markets as red ink spreads."

So how much red ink could we be looking at as a country? Again, from the Journal ...

"The $455 billion deficit for the fiscal year that ended Oct. 1 already is the largest on record in dollar terms. As a percentage of gross domestic product, though, it amounts to 3.2%, less than at the peak of the 1980s downturn.

"But the deficit will be a lot worse next year, likely reaching between $750 billion and $1 trillion, depending on how costs of the financial-sector bailout are accounted for. The only real question is whether the deficit, as a percentage of GDP, cracks the postwar record of 6% set in 1983. If the red ink hits $900 billion or so, it will."

We keep being told not to worry about the surge in the deficit and U.S. borrowings (Treasury is selling $28 billion in 3-year notes tomorrow and $16 billion in 10-year debt on Thursday). We keep being told this is no big deal. And so far at least, the Treasury bond market has not rebelled against Washington's profligacy. But just because it hasn't happened yet, doesn't mean it won't.

The National Association of Realtors released its report on October pending home sales today. Here's what the figures showed:

* Pending home sales dipped 0.7% in October. That was better than the 3% decline that economists were expecting. September's reading was revised to -4.3% from -4.6%.

* The pending home sales index, at 88.9, was down 1% from its year-earlier reading of 89.8. The cycle low was 83 in March.

* Geographically, pendings rose 0.6% in the Northeast and 7.8% in the South. But they declined 4.3% in the Midwest and 8.7% in the West.

It was a bit of a mixed bag for pending sales in October. Pendings rose in two regions, but fell in two others. That resulted in a net decline, but one that was smaller than forecast.

Conditions appear mixed in the near term. The Treasury and the Fed are doing all they can to drive down mortgage rates, and they have had some success. Lower prices in some of the hardest hit markets, and almost irresistible bargains on distressed properties, are also bringing some buyers out of the woodwork. On the other hand, the economy continues to struggle and unemployment continues to rise. I expect sales to remain choppy as these opposing forces duke it out.

We just got a big batch of economic data, and most of it doesn't look good -- though it's not exactly a surprise on Wall Street. A quick recap:

* Durable goods orders plunged 6.2% in October, more than twice the forecast for a 3% drop and the biggest decline since October 2006 (-8.3%). If you strip out transportation, you get a 4.4% decline, almost triple the 1.6% fall that was anticipated and the worst since January 2002. Non-defense capital goods, ex-aircraft, orders, a key measure of business spending, plunged 4%.

* Personal income was up 0.3% on the month, slightly better than the 0.1% forecast. But spending dropped 1%, a big downgrade from the prior month's 0.3% decline and the sharpest contraction since the month of the 9/11 attacks.

* Initial jobless claims came in at 529,000, down slightly from last week's 543,000 but still well into the danger zone. Continuing claims dipped to 3.962 million from a revised 4.016 million filers in the prior week. The four-week moving average of claims climbed to 518,000, the most since January 1983.

The latest new home sales figures for October have been released. Here is what they showed:
 
* New home sales dropped 5.3% to a seasonally adjusted annual rate of 433,000 from a downwardly revised 457,000 in September (originally reported as 464,000). That was slightly worse than the forecast for a reading of 441,000, and the lowest sales rate since January 1991.

* The raw supply of homes for sale continues to decline due to aggressive cutbacks in home construction. It shrank 8% to 381,000 from 414,000 in September. But because sales declined as well, the months supply at current sales pace indicator of inventory swelled to 11.1 from 10.9 in September. That's just shy of the 11.4 month peak set in August.

* The median price of a new home dropped 7% from a year ago -- to $218,000 from $234,300. That leaves new home prices at the lowest level since September 2004.

October was a disappointing month for the home building industry, as expected. Sales slumped to the lowest level in 17 years, while prices retreated to levels we haven't seen in four years. The one encouraging trend in the new home market -- which we haven't seen repeated in the existing home market yet -- is the decline in housing inventory. The dramatic drop in construction activity has led to a sharp decline in the supply of new homes on the market.

The demand side of the equation remains challenging, with unemployment on the rise and the economy on the decline. But it's possible the market will see a pop as a result of the recent sharp decline in mortgage rates. The Fed's announcement that it would start buying mortgage backed securities has helped drive conventional, 30-year fixed rates into the mid 5s from just over 6%.

There's a great story at the Washington Post today about the interplay between retail spending and retail hiring. Specifically, the Post notes that because the holiday shopping season looks so grim, retailers aren't doing much of the seasonal hiring they typically do this time of year. More below ...

"This is the time of year when retail jobs are supposed to be as plentiful as holiday cheer, when stores gear up for the Christmas rush by filling their sales floors with college students, moonlighters and anyone else looking to shore up their income.

"But no one is feeling very jolly this year.

"Faced with plummeting sales and spooked shoppers, retailers have cut back on holiday hiring at a time when their pool of applicants is swelling with those who have been laid off from other industries. About 272,000 retail jobs were open at the end of September, according to government data released last week, down 24 percent from the same month last year. Those numbers are expected to drop further as retailers cut back on opening new stores and close those that don't perform well.

"It's bleak on both sides," said K.C. Blonski, director of travel, leisure and retail markets for consulting firm AchieveGlobal. "Retailers are looking at the cost of adding to their labor pool. The jobs are little and far between."

"Even those who have jobs are not unscathed. Managers at restaurants throughout the Washington region say they not only are reducing staff through attrition, but they are also cutting hours. Some servers say they are getting fewer tips because fewer people are dining out and those who do have become more stingy.

"For Rick and Nina Ivey, owners of 15 Virginia Barbeque restaurants, the contracting economy means a halt in hiring even though a flurry of people in their 30s and 40s have asked about entry-level jobs. For 18-year-old Megan Waters of Annapolis, it means applying at 14 stores before landing a job at California Tortilla. And for a national retailer like Best Buy, it means nearly 1 million applicants for no more than 20,000 seasonal jobs, a 20 percent increase in applicants over previous years.

"The national unemployment rate reached 6.5 percent in October, according to government data, and some analysts are projecting that it will climb to 7.3 percent next year after hovering between 4 and 5 percent for about three years. There were 1,330 mass layoffs during the third quarter that affected nearly 220,000 workers, spurred largely by slowing demand for consumer goods -- and leaving many of those affected to turn to the retail and restaurant sector as they scramble to make ends meet this holiday season."

Meanwhile, reports of big bank layoffs continue to trickle out. Citigroup is planning to let 50,000 workers go through a combination of attrition, layoffs and asset sales. The company has already slashed 23,000 jobs. JPMorgan is also reportedly looking at thousands of job cuts. And other firms, including Goldman Sachs and Morgan Stanley, are already in the process of implementing their own cuts.

That's a question I'm seeing more people ask, and for good reason. Bloomberg News has been on a little bit of a crusade to find out what the Fed is doing with our money, for instance, and I for one hope they gain some traction. See the following excerpt:

"Members of Congress, taxpayers and investors urged the Federal Reserve to provide details of almost $2 trillion in emergency loans and the collateral it has accepted to protect against losses.

At least five Republican members of Congress yesterday called for the Fed to disclose which financial institutions are borrowing taxpayer money and what troubled assets the central bank is accepting as collateral. More than 300 more investors and taxpayers also pressed for more disclosure in e-mails and interviews with Bloomberg News.

"There cannot be accountability in government and in our financial institutions without transparency,'' Texas Senator John Cornyn said in a statement. "Many of the financial problems we are facing today are the direct result of too much secrecy and too little accountability.''

"House Republican Leader John Boehner and Republican Representatives Jeb Hensarling of Texas, Scott Garrett of New Jersey and Walter Jones of North Carolina also are pressing Fed Chairman Ben S. Bernanke to elaborate on the Fed's emergency lending. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in the separate $700 billion bailout of the banking system that was approved by Congress last month.

"European Central Bank President Jean-Claude Trichet today urged greater disclosure to help strengthen the global financial system.

"Despite all regulatory advances and progress in information technology, the financial system has been characterized by a lack of transparency about the ultimate allocation of risks,'' Trichet wrote in today's Financial Times, citing as examples "the sheer complexity of structured financial products, which even sophisticated investors are not able to assess properly, and the lack of regulation of certain financial institutions."

"Bloomberg News has sought records of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure."

Then there's the Washington Post story today about the lack of oversight of how the TARP bailout money is being spent. Is the bailout proving to be a case of Ready, Fire, Aim? Only time will tell. But the way we keep lurching from crisis to crisis, from bailout plan to bailout plan, isn't exactly encouraging. More below ...

"In the six weeks since lawmakers approved the Treasury's massive bailout of financial firms, the government has poured money into the country's largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

"Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

"Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

"It's a mess," said Eric M. Thorson, the Treasury Department's inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don't think anyone understands right now how we're going to do proper oversight of this thing."

"In approving the rescue package, lawmakers trumpeted provisions in the legislation that established layers of independent scrutiny, including a special inspector general to be nominated by the White House and a congressional oversight panel to be named by lawmakers themselves.

"Some lawmakers and their aides fear that political squabbling on Capitol Hill and bureaucratic logjams could delay their work for months. Meanwhile, the Congressional Budget Office, which also has some oversight responsibilities, is worried about the difficulty of hiring people who can understand the intensely complicated financial work involved."

Another day, another batch of dismal economic data. This time it's the ISM Manufacturing index. It came in at 38.9 in October, down from 43.5 in September and below forecasts for a reading of 41. That's the worst ISM reading going all the way back to September 1982. In case you're wondering, the worst reading ever (my data goes back 60 years) was 29.4 in May 1980.

Digging deeper into the report, the ISM subindex measuring new orders dropped to 32.2 from 38.8. The subindex measuring employment fell to 34.6 from 41.8. And the subindex measuring production dropped to 34.1 from 40.8.

Meanwhile, in the beleaguered auto sector, Ford reported that sales plunged 30% from a year earlier in October. Sales fell 23% at Toyota and 33% at Nissan. Auto sales are down 12 months in a row, the longest consecutive stretch of declines in 17 years.

That's what I'm left wondering when I read stories like this one, entitled "Bailout scope limited to ... virtually anything." Here's an excerpt ...

"As the list of ailing companies seeking government help grows, it is anybody's guess where the Treasury Department's largesse will stop.

"The $700 billion bailout bill is so vague that virtually any U.S. company could be eligible for government help.

"While the capital infusions announced this month will be directed only to banks, Treasury spokeswoman Brookly McLaughlin confirmed the law allows the department to create other rescue programs "open to a broader set of financial institutions."

"As the bill is written, "financial institutions" don't have to be banks or financial entities. In theory, any company could declare itself a financial institution and ask Treasury to grant it temporary aid if its rescue is deemed "necessary to promote financial market stability."

Critics said Congress should have set a clearer definition for the kinds of companies that could be rescued.

"Talk about the barn doors being left open — it's like they left off the walls and roof, too," said Bert Ely, an independent banking consultant. He suggested that under the bill, an airline could transfer future revenue streams into a subsidiary and ask the government to buy shares in that new "financial institution."

"The only limit to what Treasury could do, Ely said, is the bill's $700 billion ceiling.

"Representatives of the auto, insurance and other industries are already seeking government help, indicating they think they qualify because of their financing units. But McLaughlin's statement suggests that even companies without financing operations could qualify as well.

"No company outside of banking, insurance or auto manufacturing has yet said it will ask for aid from the bailout. But airlines and home builders are lobbying for government help to prop them up through the economic downturn — either under the bailout bill or some other legislation.

"And if insurance and auto lobbyists succeed in their efforts to tap the bailout money, experts said other industries would probably follow."

Frankly, this is getting patently ridiculous, as I warned that it might. The resources of this country are not unlimited. Capitalism only works when you allow failures to occur. Flushing hundreds of billions of dollars down the toilet to support every Johnny Come Lately bank, insurer, investment bank, auto maker, home builder, investor, and foreign country that made bad decisions just doesn't make sense.

I'm not even talking about the outrageous fact that our taxpayer money is going in the front doors at the nation's banks, then right out the back to shareholders as dividends. Or that our taxpayer dollars are supporting Wall Street firms that are simultaneously poised to pay out billions and billions of dollars in bonuses. I'm talking about the extremely troubling notion that core economic principles in this country are being thrown out the window.

The credit virus just keeps spreading, and with each new outbreak of disease, various government agencies are forced to respond. The government is now talking about allowing insurance companies to get their hands on billions in bailout money. Here's an excerpt from the Washington Post:

"The Treasury Department is working on ways to broaden its $700 billion bank rescue program to help insurance companies that are a critical backstop to a wide range of deals, bond issues and leasing arrangements, sources familiar with the matter said.

"Treasury is worried that insurance companies, many of which report earnings next week, could face similar fates as American International Group as the credit crisis worsens, triggering a new wave of problems for the financial markets. AIG nearly collapsed last month when it was overwhelmed by losses from real estate investments and derivatives, requiring massive government loans of more than $123 billion. It has already burned three-quarters of that money.

"Treasury officials said today that insurance companies organized as thrift holding companies are eligible to receive money from the government because they are regulated by the Office of Thrift Supervision. Treasury has formed a team to specifically examine mounting trouble within the insurance industry.

"But industry sources said that Treasury is also looking at ways to aid insurance companies that have no federal regulator. Many of these companies are subject to oversight by state authorities."

And it doesn't stop there, according to the New York Times. The IMF is looking into potential bailouts of emerging market countries hit hard by the credit crisis. An excerpt:

"With the financial crisis engulfing developing countries from Latin America to Central Europe, raising the specter of market panic and even social unrest, Western officials are weighing coordinated action to try to stabilize these economies.

"The International Monetary Fund, which is in negotiations with several countries to provide emergency loans, is also working to arrange a huge credit line that would allow other countries desperate for foreign capital to borrow dollars, according to several officials.

"The list of countries under threat is growing by the day, and now includes such emerging-market stalwarts as Brazil, South Africa and Turkey. They have become collateral damage in a crisis that began in the American subprime housing market.

"The fast-growing economies of the developing world depend on money from Western banks to build factories, buy machinery and export goods to the United States and Europe. When those banks stop lending and the money dries up, as it has in recent weeks, investor confidence vanishes and the countries suddenly find themselves in crisis.

"Details of the arrangement are still being worked out, but it could be supported by Japan and several oil-producing countries, a fund official said. The fund has not yet approached the Federal Reserve, according to officials, although the Treasury Department has expressed interest.

"Two weeks ago, the Fed set up unlimited swap agreements with the European Central Bank, the Bank of England and other central banks to ease the severe credit turmoil in Western Europe.

"This time, the focus would be on emerging markets, with good economic records, which are having trouble borrowing dollars."

There's nothing like trying to get your voice heard when you're just one of eight in an "Octobox" on TV. But if you're interested, I shared some thoughts on the housing market today in just such a segment earlier on CNBC. Here's the link.

Every day, it seems like events in some far corner of the world come back to haunt the markets. Many of us here in the U.S. may not pay attention to these events, but we should. I talked about Iceland a while back, and how that country's currency, stock, and banking crises would have repercussions here in the U.S. And boy did they ever. Now, we have fresh crises rearing their heads in both Hungary and Argentina.

In Hungary, the currency (called the forint) has been plunging for weeks on end as global investors pare risk and withdraw funds from higher-risk emerging markets. The forint is trading at 214 against the dollar, a huge decline from the 143 level back in July (In other words, 1 U.S. dollar buys many more forints than it did a few months ago). The Magyar Nemzeti Bank, Hungary's central bank, has responded by jacking up the nation's benchmark rate to 11.5% -- an increase of three percentage points. Higher rates are designed to stem the flight of capital.

Meanwhile, in Argentina, the country is planning to seize $29 billion of private pension funds. This caused bond yields in the country to surge, and the Merval stock index to plunge 11% (It is down more than 51% on the year). The government last raided pension fund investments to service its debt in 2001 -- and then defaulted in a move that sent shockwaves through the global capital markets.

While some credit indicators are improving (LIBOR, swap rates, and so on), these events are reminders that we're still in a crisis atmosphere worldwide. Money is fleeing higher-risk economies and flowing into the dollar as a result.

One last thing: If you didn't see the latest Mortgage Bankers Association figures on home loan applications, you should check them out. The MBA's combined index (refis + purchases) plunged 17% to 408.1 in the week of October 17, the lowest level since December 2000. The purchase index came in at 279.3, the worst since October 2001.

A lot of economic data hit the tape today, and it all tells the same story: It's ugly out there. While initial jobless claims dipped to 461,000 from 477,000 a week earlier, continuing claims rose to 3.711 million from 3.671 million, the most since June 2003. Net inflows into U.S. assets also came in at just $14 billion in August, well below forecasts for a reading of $30 billion.

Meanwhile, industrial production tanked 2.8% in September, much worse than the 0.8% decline that was expected and the single-worst reading in ANY month going back to 1974. And the Philadelphia Fed index plunged to -37.5 from 3.8 a month earlier. That was well below the -10 reading that was forecast and the worst reading since October 1990.

Amidst all the $250 billion bailout hoopla, and the previous news that the government will buy up both whole loans and Mortgage Backed Securities, in an effort to drive financing costs DOWN, something interesting is going on -- and I don't see many people talking about it. Home mortgage rates aren’t falling. They're going UP.

The average rate on a 30-year fixed mortgage jumped to 6.47% in the week of October 10, according to the Mortgage Bankers Association. That was up from 5.98% a week earlier and just shy of the August high (6.58%, itself the highest in more than a year).

How can rates be going up when the economy is tanking and the government is throwing everything it can at the banking sector and credit markets? Because bond investors are dumping bonds – and when bond PRICES fall, bond YIELDS (interest rates) rise.

Why are those investors selling? Well, we just learned that the budget deficit soared to $454.8 billion in fiscal 2008, which ended September 30. That was more than double the $161.5 billion deficit in 2007 and the highest in the history of the country. Thanks to all the fresh bailout programs, the deficit will likely surge by a few hundred billion MORE dollars in fiscal 2009.

But no one in Washington has shown any willingness to raise taxes to pay for these bailout programs. And there’s no a pile of money just sitting around in the U.S. Treasury to fund them, either. We’re a net debtor nation. We’re going to have to borrow hundreds of billions of dollars to make good on all of our promises.

That means a mammoth flood of Treasury debt is going to wash over the market in the coming year or two. Bond traders know that all of that bond supply will overwhelm bond demand. So they’re not sticking around. They’re selling bonds NOW, driving prices down and rates up.

Long bond futures have plunged from an intraday high of 124 23/32 in mid-September to 113-and-change now – a whopping 11-point decline. Ten-year Treasury yields have jumped from 3.39% to around 4.10%.

Bottom line: The government would like everyone to think it can just waive a magic wand, drive mortgage rates down, save the banking sector, and return us to the happy-go-lucky, reckless lending days of 2005. But it can’t. There is no free lunch. Indeed, instead of driving financing costs down, the bailout announcements are actually helping drive key financing rates (like 30-year mortgages) up!

If there is a bright side out there, it's that LIBOR rates are nudging lower. Three-month LIBOR was fixed at 4.55% this morning, for instance, vs. an October 10 high of 4.82%. Overnight LIBOR is much closer to the federal funds rate as well -- 2.14% vs. a FF target of 1.5% (a spread of 64 basis points). That compares to a spread of 488 basis points as of September 30.

It's a busy day on the global markets front. So let's get right to the news ...

* U.S. dollar LIBOR rates generally rose again, with 3-month LIBOR up 3 basis points to 4.32%. That is just shy of last Friday's cycle high of 4.33%. Overnight LIBOR jumped to 3.94% from 2.37%, though that is still below the cycle peak of 6.88% on 9/30. 6-month LIBOR, for its part, dipped to 4.02% from 4.05%. The TED spread, another indicator of credit market stress, is slightly below its recent peak -- 3.72% as I write versus a 10/3 high of 3.87%. Two-year swap spreads are down to 136 bps or so, versus a recent peak of 167 on 10/2.

* In the overseas markets, Australia's central bank lopped a full percentage point off its benchmark short-term interest rate. The Reserve Bank of Australia's cash rate target dropped to 6% from 7%, the biggest cut since 1992. In the U.K., the Bank of England announced it will hold dollar loan auctions to help ease market stress. Policymakers there are also discussing injecting $79 billion into leading U.K. banks. Meanwhile, in Europe, the European Central Bank lent a whopping $339 billion to banks in its latest weekly auction, the most since December 2007.

* And of course, the speculation here is that the Federal Reserve will come riding to the rescue with another big interest rate cut. The funds rate target is currently 2%, down from 5.25% last summer before the credit crisis got underway. It might come too late for Iceland, where the government is trying to get more than $5 billion in loans from Russia to save itself ... and where the government just had to seize Landsbanki Islands hf, the country's second-largest bank.