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In China the Government owns the Banks; the bankers do not own the Government. China’s stimulus plan is working better than in the US and the UK because the government is using the banks for public ends, rather than allowing the banks to use the government for private ends. In the USA, the banks are the most powerful lobby on Capitol Hill; they own the Government.

The USA is spending trillions of greenbacks to bail out its banking system, leaving its economy to languish, as China, now called a “miracle economy,” decoupled from the rest of the world, is maintaining a phenomenal 8% annual growth rate. That, by the way, is being questioned by lots of Pols, commentators, economists and other talking heads, as they ask how that growth is possible, when other countries relying heavily on exports have suffered major downturns and remain in the doldrums. Read more

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The start of Y 2009 Q-2 earnings season begins this week and may be a Key factor for determining how much faith investors will have in an economic recovery. After a rally of as much as 40% for the S&P 500 on expectations the economy will begin to turn around by year end, analysts will hone in on companies’ projections to see if their hopes are corroborated. The light menu of economic data will help keep the spotlight on earnings releases, with bellwethers Alcoa and Chevron posting their quarterly’s. Of even more importance will be any outlook companies give for what they expect to see for the rest of the year. A large US Treasury auction could buoy the market if it shows there is good demand for government debt. Concern that the appetite for debt is waning as the government tries to fund its stimulus efforts was soothed by solid demand in last week’s record US$104B auction of Treasury securities.

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The US economy contracted slightly less than initially estimated in the Q-1, while corporate profits rebounded, according to a government report on Friday that hinted the recession was moderating. Gross domestic product, which measures total goods and services output within US. borders, dropped at a 5.7 % annual rate, the Commerce Department said, less than the 6.1% estimated by the government last month. The economy contracted at a 6.3% pace in Q-4. While the drop in economic activity was still steep and slightly worse than market expectations for a 5.5% fall, recent data have indicated that the rate of the slowdown was easing and growth could resume by year-end. Output has declined for three straight quarters for the first time since 1974-1975. “The recession is easing. The second quarter is shaping up to be a smaller decline of about 3.0 to 3.5%. It should be the last of the negative quarters,” said Christopher Low, chief economist at FTN Financial in New York.

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Last week, US President Barack Obama thanked everyone from unions to executives for working to keep Chrysler LLC alive while blaming “a small group of speculators” for forcing the automaker into bankruptcy. “A group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout,” Obama said yesterday in Washington before Chrysler filed for bankruptcy protection last Friday. Now, the US government and Chrysler plan to use bankruptcy to compel the dissidents, all secured creditors, to go along with a plan to create a more viable carmaker in partnership with Italy’s Fiat SpA. In lashing out at the holdouts, Obama is attempting to rally the public behind his efforts to rescue the automaker, said Stuart Rothenberg, a Washington-based political analyst. “In the real world, you have good guys and bad guys, and at the moment, auto executives, hedge-fund managers and bankers are all in the bad-guy category,” said Rothenberg. “He wants to be the guy who’s solving the problems and wants to make it clear who’s causing the problems.”

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US banks are looking to capitalize on strong Q-1 results and the end of the government “stress tests” to raise capital and rebuild investor confidence in the battered sector. Goldman Sachs is finalizing a plan to raise billions of dollars in the capital markets, a step that could pave the way for it to repay US$10B in government cash Successfully raising the funds could satisfy what has become an unofficial condition of being allowed to repay government loans, as government officials have told banks that they also need to demonstrate that they have solid investor support. Goldman had around UD$111B of cash and cash-equivalent securities in December 2008 The plans to repay the bail out money soon may be threatening to banks still in need of help, a list that could include Citigroup or Bank of America, as it would draw a distinct line between healthy and unhealthy institutions.

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The US Federal Reserve bought US$7.541B of Treasuries in its second outright purchase of U.S. government debt in three days as part of the central bank’s efforts to lower consumer borrowing rates. The majority of the purchase was US$5.625B of the 1.375B note due March 15, 2012, that was issued this month. Seven of the 18 securities maturing from April 2011 through April 2012 listed for possible acquisition were bought, according to the Federal Reserve Bank of New York Web site. Central banks in the US, UK and Japan are buying government debt in the latest step to broaden efforts to unfreeze credit and end the recession after cutting benchmark interest rates close to zero.

The Fed bought US$7.5B in debt on March 25, the first purchase since the early 1960s by the central bank under a US$300B plan announced March 18. “The Fed’s monetization of government borrowing is in economic terms a hugely powerful liquidity tool,” said Lena Komileva, head of Group of Seven market economics in London at Tullett Prebon Plc, the world’s second-largest interdealer broker. “It also helps to address investor fears, by depressing government yields and private sector borrowing costs and signaling a firm commitment by the Fed to keep monetary liquidity flowing for a long time.”

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