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The Banana Republic of the United States. We're not there yet, but we're certainly sliding in that direction. One of the characteristics of a banana republic is that its run by a few powerful rich people, who use their influence to get whatever they want from the folks who write the lawslaws that are tailor made just for the elite.

The deal-making is really at the heart of the way these societies work: Well-connected fat cats scheme and make deals with the politicians; then the politicians make deals with each other behind closed doors; and then laws are proclaimedkind of like what happened with the health care bill. And kind of like what's happening now with the financial reform bill.

Nebraska Sen. Ben Nelson was one of the chief deal makers with the health care bill, and that cost him dearly with his fellow Nebraskans, who thought his deal making stunk. But old habits die hard, and now Sen. Nelson is pushing for a special deal in financial reform law that would overwhelmingly benefit Sen. Nelson's richest constituent: one, Warren Buffett.

Mr. Buffett's Nebraska-based Berkshire Hathaway has a $63 billion derivatives portfolio, and derivatives are one of the focal points of this bill. The proposed bill would have forced Berkshire to put aside a huge reserve fund to cover the potential losses from these derivatives if they went bad. But Sen. Nelson's trying to change the law to make it apply just to those folks who buy derivatives from now on. In other words, not only would Mr. Buffett get off the hook in coming up with new reserves, but it would put a heavy burden on Mr. Buffett's future competitors. In some ways, this kind of banana republic deal is worse than what happens under socialism...at least socialists are clear about their intentions to take over all private property.

It reminds us of something Milton Friedman used to say:

"The biggest enemy of the free market is not the socialist, but the businessman who wants a free market for everyone but himself."

These are the deals and the carve outs that describe so much of what goes on in Washington these days. Of course, this kind of deal making isn't new. But the dollar amounts are now so huge in relation to the overall economy that they take on whole new dimension...the old political pork we used to rail against on Scoreboard, as bad as it was, was relatively puny in comparison.

And hopefully the discount window gets raised in addition to those comments by Jap. about wanting a weaker Yen last Fri. (though that seemed not to do too much).

Some are attributing today's flattening of the US yield curve to Canada's increased probability (confirmation?) of a June rate hike. Different economic situations (less bad banks, less real estate bubbles in Canada) but a rising tide lifts all boats.

As Ashraf has mentioned in previous videos, Canada may not necessarily hike rates in a vacuum. Canada's annoucement today may be seen as positive for the USD as well.