A weak dollar is good news for the world or at list that is what Mr.Market thinks. Behind the global economy’s current revival is a returning appetite for risky investments, such as equities and corporate bonds.

Now that stockmarkets and economies have bounced back, dollar weakness has returned, causing a headache for countries with floating exchange rates.

Europe’s efforts to contain the dollar’s weakness have had rather less impact. This week the dollar slid to $1.50 to the € !!

In fact America needs a weak dollar to help revive its economy and reorient it towards exports and away from consumer spending. Since China and some other Asian countries track the dollar, the burden of exchange-rate adjustment falls on the euro.

“Spanish banks are failing to recognize the true scale of their losses during the deep slump in Europe’s fifth-largest economy — something that could hamstring the sector’s growth for years” said  Moody’s Investors Service.

In a report, the credit-rating firm said Spanish financial institutions weren’t setting aside enough capital to cover surging bad loans. Moody’s said the banks set aside less than half the €108 billion ($160 billion) in loan losses it estimates they will suffer during the course of the downturn. At the current rate they are provisioning, it would take Spanish banks five years to fully cover those losses, it said.

“We remain concerned that many banks appear to be avoiding recognizing the true scale of the asset quality deterioration in their books, which could result in the banking sector remaining weak unless this is addressed more decisively,” said María Cabanyes, lead Spanish banking analyst at Moody’s.

From the Spanish  side an official representing the savings banks dismissed the notion that they were hiding losses as an “urban myth.” The official said, “We have no reason to doubt the figures the banks are giving us.” says WSJ today…

Very soon we will have the answer…

Source: Bud Conrad ( Casey report )

Data published on Oct. 7 confirms what we all know, that the U.S. consumer is not borrowing to spend. In a world where credit has become so important to consumer spending, and where consumer spending drives 70% of GDP, the indicator confirms that the economy is still in slow-growth territory.

While overall consumer credit continues slowing and is now declining at a rate of close to 5%, the subset of revolving credit, namely credit cards, is slowing even more – by 7.8%.

And consumer credit isn’t all that’s on the decline: commercial and industrial loans are off 12%.

Borrowing tends to be a lagging indicator, as the aftermath of a recession still lingers in the minds of consumers, and is reflected in more cautious banking practices. As the charts clearly show, the whole private sector is still in record-low borrowing mode.

The government, on the other hand, is doing the opposite – borrowing like crazy – in an attempt to counteract the Great Deleveraging. If we didn’t have the government directly supporting specific markets, the trends in private-sector borrowing would likely be even worse. And, with them now falling at a record pace, they are already about as bad as it gets – confirming how serious the current recession is.

Access to credit in US and other countries is being denied at an accelerating pace. Large, well-capitalized companies have no problem finding credit. Small businesses, on the other hand, have never had a harder time getting a loan.

As Meredith Whitney from Meredith Whitney Advisory Group, LLC says ” Since the onset of the credit crisis over two years ago, available credit to small businesses and consumers has contracted by trillions of dollars, and that phenomenon is reflected in dismal consumer spending trends. Equally worrisome are the trends in small-business credit, which has contracted at one of the fastest paces of any lending category. Small business loans are hard to find, and credit-card lines (a critical funding source to small businesses) have been cut by 25% since last year.”

Let´s remember that in the U.S., small businesses employ 50% of the country’s workforce and contribute 38% of GDP. Without access to credit, small businesses can’t grow, can’t hire, and too often end up going out of business.

Meredith again ” Small businesses primarily fund themselves through credit cards and loans from local lenders. In the past two years, credit-card lines have been cut by over $1.25 trillion. During the same time, 10% of all credit-card accounts have been cancelled.”

The next phase will likely be credit-line cuts as lenders race to pre-emptively protect themselves from regulatory changes associated with the Credit Card Accountability, Responsibility and Disclosure Act, passed in May of this year, and the 2008 Unfair and Deceptive Acts and Practices Act.

I think that regulators should be very very worried about making changes that reduce credit in the middle of this crisis…