The Early Signs

Early tangible signs are emerging of a repricing in the both the US dollar and the British pound resulting from the active debasement of their currencies. As the link to the above article suggests markets are beginning to accept that the US dollar, in particular, is not adequately priced for sovereign risk.

In this blog I have restarted time-and-time again the inevitable consequences of US government deficits, and now with "quantitiative easing" the debasement of the US dollar has virtually moved into the sphere of the deliberate.

Progressively the US will have to pay more and more to foreign holders of its Treasury notes. Interest rates will now progressively start to rise and sentiment decline to a new nadir. The chance of a rapid collapse in sentiment and a run on the dollar remains real.

The Second Movement

We should congratulate the world leaders and central banks for the way they cooperated after the Lehman crash. We had the leaders and central banks of US, China, continental Europe, Japan, Russia and the UK all working together to achieve a common goal. It was unprecedented in global history and what they achieved was remarkable.

Above quote from Mr. Gottliebsen from Business Spectator. One of the best business reporting services globally..........except for this comment (link above).

Yes it is remarkable what the world's central banks have achieved. Together they have primed the global economy for stage two of the Great Recession. It is the part when you look back at 2008/09 as the good ole' days. The framework for extended global currency instability is now firmly in place. Sovereign risk is now primed with tangible default potential over the next decade across developed economies.

The severe depletion of personal savings over the preceding decade has now been matched and exascerbated by an even more severe depletion of government capital. As governments have no productive capacity in their own right this in effect further personal indebtedness to be serviced via taxation. The only different is it is far more likely to have been floudered away through inefficient government resource allocation ie, bailoutorama.

The lynchpin for stage two has always and will remain the United States. The eventual collapse of the US dollar will make the global financial crisis seem like a 2% fall in the Dow Jones. As governments rush to stabilise their own currencies against a rapidly falling US dollar global interest rates will rise dramatically in a very short time.

It will be interesting to see what the banks stress tests look like at -5% GDP, 15% CPI, and 20% full and partial unemployment in the United States.

Right now Australia seems to be doing better than most, but that will depend on just how hard the current government try to "save" us. Sadly we are just at the beginning of the second movement of this symphony.