Guest Post: Apocalypse Not: The Dollar

The apocalyptic flavor of the month is dollar crisis. One should take the possibility seriously. The data does offer reasonable assurance that it won’t happen anytime soon. Yes, even in spite of massive (but not unprecedented) fiscal and monetary craziness, a socialist president, a populist legislature, and seething people just itching for the whole outhouse to go up in flames. Why doesn’t it make sense that the dollar should be out on its rear while gold or oil and their devotees dance in the street?

Because those distinctly American circumstances don’t incorporate a wide enough range of vision. The issue isn’t about the United States in a vacuum. It is about the United States as a reserve currency country whose debt acts as the world financial system’s risk-free collateral. Before any imminent implosion of the dollar, there is a whole zoo of more flawed economies like Dubai and Greece and dozens of others that would fall. As old as history itself is the truth that the last ones standing claim the spoils of victory. The United States has the 61st highest public debt ratio in the world.

David Rosenberg And A Few Good Economic Observations: "Can You Handle The Truth?" His 2010 "Outlook"

Rosie doing what he does best: staking a lot by going against the consensus... Again

Democrats Approve Short-Term $290 Billion Increase In U.S. Debt Ceiling Limit To $12.4 Trillion

House lawmakers voted by a razor thing margin of 218-214 to pass the borrowing increase. Not a single Republican lawmaker voted to support the hike. They argued that increasing the debt ceiling was giving the Democratic majority and the Obama administration a license to spend more money.

Krugman And The Magazine Cover Hypocrisy

Paul "We need a housing bubble" Krugman reaches new heights in objective, hypocrisy-free self-assessment. In his latest blog entry analyzes the destructive effects of the magazine cover effect. He should know...

FOMC Statement: "Exceptionally" And "Extended", Liquidity Swap Arrangements Coming To An End On February 1, 2010

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

Senator And Member Of Senate Banking Committee Jeff Merkley Joins Opposition Against Ben Shalom Bernanke

“Tomorrow, I will vote against confirming Ben Bernanke as Chairman of the Federal Reserve. The reason, in short, is that as Chairman, Dr. Bernanke failed to recognize or remedy the factors that paved the road to this dark and difficult recession. Following our economic collapse, it is also apparent that he has not changed his overall approach to prioritizing Wall Street over American families." - Senator Jeff Merkley

Too Bigger To Fail? St. Louis Fed Warns Over Concentration Of Risk In Ever Growing, Ever Fewer "Big Banks"

One of the numerous adverse side-effects of the horrendous policy decision to start bailing out each and every risky bank, and thus allowing no more risk in any investment (for the time being), has been the very simple observation that massively mispriced risk has gotten concentrated to an unparalleled degree among very few players. The population of Big Banks has been massively trimmed (Goldman thanks everyone for allowing them to have massive Fixed Income bid/ask spreads) and now a mere five banks account for the bulk of loans, deposits, and derivative exposure. When the economy is faced with another Lehman event at some point in the future, when bailing one of the Big 5 is no longer feasible, the delayed consequences which have so far been successfully swept under the rug, will come back in time and bury any positive legacy that the Man Of The Year may have created. One indication that this time may be sooner than most think comes out of the St. Louis Fed itself, which has released a paper titled "The evolving size distribution of banks" in which it highlights the expected: big banks are getting bigger, and are holding a record share of all rosky assets. When the asset repricing moment occurs, absent an apriori renewal of Glass-Stagall, look for the inevitable moment of complete House Of Cards collapse.