All the economic news is negative or not so bad as expected. We therefore suspect a bear trap, which may even extend to some bonds. Beware Credit Default Swaps.

The central banks have done a good job on liquidity, but the credit squeeze, the US recession and inflation rather suggest the current calm is the eye of a storm.

Three dangers: credit crisis, recession and inflation. Only the first is being dealt with, and then essentially only in terms of liquidity. Expect a “U”-shaped recession with a long base.

We have long identified three underlying causes of the crisis, but this week the figure three arises again in the dangers threatening an orderly move to a rebalanced world economy.

Neither excessive optimism or pessimism is appropriate. US recession is a key component of economic rebalancing and just may be being given the time and conditions for orderly work through.

Can central banks give an implicit guarantee that they will allow no bank to fail without reintroducing the moral hazard which has done so much to cause the crisis?

The consequences of the credit squeeze have so many dimensions that we can appropriately speak of the end of an era, or of history in the unfolding.

Another Fed boost, another stock rally, but this is all palliative. Inflation and recession in the USA, but the Rest of the World may get off lightly.

This crisis is not just about illiquidity but also about insolvency and the fear that borrowers, including banks themselves, will not repay. The Fed “boost” misses the point.

The disarray in US economic policy in both the contradictory appeals by Paulson and Bernanke regarding mortgage bail-outs, and by a constantly changing approach to the monoline problem.

If you thought that banks had already recuperated off-balance sheet vehicles, think again. Variable Interest Entities, an Enron device, have yet to play out with the downgrading of monolines.

Cannons to the left of us, cannons to the right. In this case sub-prime losses being revealed across Europe, not just the USA, and monolines in slow collapse.

The signs are that, while talking reassurance, the US authorities are really moving towards damage limitation. What the Buffett intervention really implies is that monoline insurers can go hang.

If Europe and Japan authorities are reluctant to follow the same path their US counterparts, are we really moving towards serious rebalancing, even if via a shared recession?

Be a fly on the wall for a discussion amongst US policy makers. Any resemblance to people living or dead is purely deliberate. Be duly frightened!

Greenspan put Mark II has been put into action, but seems unlikely to reverse economic decline. The UK is as bad as the USA, but inflation is more explicitly admitted.

Systems failure, first cited by us last July, is now apparent and will demand months or years to repair. Contagion from the USA is looking more serious than we thought.

For perhaps the first time in a hundred years, the world economy may be able to expand despite a slowdown, or even a recession, in the USA.

The central banks are doing all they can to resolve the liquidity crisis, but they can do so little about underlying solvency problems. Only time can solve them.

Against his better judgment, Bernanke has cut the Fed rate, thereby dissatisfying everyone, including himself. What the USA needs, and Bernanke knows this, is lower consumption for economic rebalance.

US consumers are still spending like there will be no tomorrow. That may be their motive! In the UK, in contrast, the credit squeeze is beginning to bite.

Another “Tuesday effect”, with Abu Dhabi buying into Citigroup, does not mean a change of fortunes. Now another securities class, “auction bonds” is contributing to the loss of confidence.

Each dispersal of the fog reveals greater sub-prime losses, contagion to other markets and more reasons to expect a continually falling dollar. And bond market liquidity is again worsening.

A rebound in stock prices after several days of falls could signal a change in mood, but we doubt it as the underlying US economic problems are far from resolved.

If you thought it was "all clear" after the credit squeeze, think again. Some banks could even be in serious trouble, but they all have much less to lend.

Beyond the week-to-week developments of financial markets, a “mega-trend” is firmly underway, providing a background to individual events: the shift of economic power from the West to the East.

From Euromoney’s AsiaHedge Conference in Hong Kong, the USD and the US economy look very weak. Investors here plough on, while in the West “wait and see” rules.

Whether the USA and other countries are heading for inflation or deflation is far from obvious. Consider both sides of the argument to review likely Fed rate moves.

The UK has US-like symptoms of a housing bubble and a sub-prime mortgage market, fed by unscrupulous selling, inadequate due diligence and lax supervision. Expect changes in financial market regulation.

One of the financial market problems, bank illiquidity, is slowly being solved. However, the US economy is facing slowdown or recession. We hope the rest of the world will cope.