Cloak of Dollar Illusion

The dollar’s role as a good store of value is “questionable” and the currency has a high degree of risk

...or so says said Nobel Prize-winning economist Joseph Stiglitz. I couldn't agree more. The missing part of this article is what would happen if the world attempted to move to a new global reserve currency. I suspect that very quickly the great illusion of the US dollar would manifest itself as a gaping chasm. The comcommitant fall in the US dollar, the US standard of living, US consumption, and the US economy would plunge the the US and the rest of the world with it into a economic disaster.

It's not the the gaping chasm isn't here already ...its just covered by some precipitously placed Chinese silk.

Banananomics

" But it was a wise man who said, 'All I want to know is where I’m going to die so I’ll never go there.' We don’t want our country to evolve into the banana-republic economy described by Keynes."

Follow the link to the featured article from the New York Times penned by Warren Buffet. In this article Mr. Buffet makes a few comments reminscent of Paul Keating's famous "banana republic" speech of 1989. The then Treasurer of Australia warned that the country was headed into economic oblivion. He then induced a recession in Australia raising interest rates into the high teens. It was a brave move and one that earned him not inconsiderable political ire amongst a lage number of voters. Although I didnt lose my house in that one I have always held that decision in high regard. The consequences were ugly, there was a very painful period of adjustment, but Australia emerged stronger and entered a period of long term sustainable growth. I believe that the United States will soon face its banana republic moment also, as Buffet aludes to.

The question is, can the United States find anyone with the political will to make the right decisions.

Recession Over?

Apparently so, for a survey of economists who believe Ben Bernanke should stay as US Federal Reserve chairman. Hmmm, perhaps Alan Greenspan should run for President. The recession is only over to the extent that the depression hasn't begun. In truth though, I do forsee the possibility for an interim period were we crest another sentiment wave before beginning a downward turn.

May no mistake, from a personal perspective I wish it was over! I have no personal interest in living through a depression. The sad truth is that the United States, as per our previous post, remains insolvent. As long as its creditors continue to provide unlimited finance to its unlimited deficits, this charade will continue. History may determine in retrospect that the U.S. was already well beyond its capacity to service or repay its debt.

As I have said before these are still the good times for the United States and the rest of the world. A U.S. debt default de jure, or de facto (high inflation/low currency), will be catastrophic. While it is not necessarily imminent, when it happens, it may occur very quickly indeed.

Let's all hope that unlike August 2004 this time I'm completely wrong. I surely do.