This week we saw more chapters unfold in the unending story of bailouts for the financial markets. We are approaching the $8 trillion mark in bailouts and the numbers look set to climb much higher.

One chapter saw the Federal Reserve announce that they would be purchasing $800 billion worth of consumer loans, such as mortgage loans. The good news with this announcement is that it did push mortgage rates lower by more than 1/2 per cent.

The other news this week was not so good. The government had to step in to save the nation's largest bank - Citibank. The government did this by placing a guarantee on over $300 billion worth of Citibank's loans. Unfortunately, many of these loans are bad loans which means the taxpayers will be on the hook for them.

This government action has, of course, set off a chorus of "me too" from all the other banks. They also would like all of their bad loans guaranteed by the government.

Add to this the growing list of companies that are turning themselves officially into "banks". The list includes brokerage firms such as Wall Street giant Goldman Sachs, insurance company giant Hartford, and credit card company giant American Express. They have all officially become banks so they can gain access to the trillions of dollars that Uncle Sam is giving to US banks.

OBAMANOMICS

I wrote recently in an article for Oxbury Publishing that a friend of mine was walking near the Obama residence in Kenwood, Illnois. He saw a huge crowd of people gathered near the residence. He asked a policeman - "why are all of these people here? Are they just hoping to get a glimpse of our new President?" The policeman answered "Nope, these people are all corporate executives looking for a government handout!"

It's not a true story, but it is a good summary of the current state of American capitalism and the myriad pressures that President-Elect Obama will face when he takes office in January.

That is why I was so disappointed by his choice of Tim Geithner as the new Treasury secretary. As head of the New York Fed, he did a very poor job of overseeing Wall Street. Wall Street loves the choice of Tim Geithner - what a surprise!

I believe that for Treasury secretary, the country needed a Wyatt Earp to clean up the Wall Street excesses. Instead, the new Treasury secretary seems to be more of a Barney Fife than a Wyatt Earp.

LONG TERM CONSEQUENCES

The US government is fully backing the US financial system. Great! The big question remains - who is going to back the US government? As I spoke about in last week's article, the US is now hugely dependent on the kindness of strangers to fund the multi-trillion dollar bailouts.

If foreign countries, such as China, decide to focus on their own domestic economic problems instead of buying trillions of dollars of US Treasuries there will be long-term consequences for the US.

Perhaps the main long-term consequence for the US may be a dramatic weakening of the US dollar. So you may still see that your house is worth $200,000 or your 401k is worth $100,000 or maybe the Dow Jones will be at 15,000 but the actual value of the dollars you hold will be diminished. A loaf of bread may cost $10, a gallon of milk may cost $20, etc.

I have read that numerous government officials think that if that happens that most Americans won't "notice". They think people will just look at the big nominal numbers - "Hey,the Dow Jones is at a new high or hey, my house is worth a quarter million dollars!" and think everything is OK.

I don't think the American people are stupid and they will notice their diminished standard of living. I guess we will find out.