Ambrose Evans is the closest thing the establishment allows
to reality.

Iceland's just the first in the long line of sovereign default
nations that are really colonies of NATO, which is just
an umbrella(shell corporation) holding company for our colonies.

Russia has all but taken the major naval base away from us there.

and this is just the first. It's how empires pay their debts.
they trade away colonies. Taiwan's next. I bet the US asks
permission before transiting the Taiwan Straits now.

... make every USA citizen a millionaire and your economy will boom.

I've already picked out the color of my Ferrari!

Gail sez:

This destructive cycle (the flight to dollars) will not continue indefinitely. At some point, central banks will sell US dollars, to try to get currencies more in sync.

As Brian T sez, it's another US- Treasury/Fed- generated 'investment' bubble ... so that won't work.

Hedge funds may begin to (will) fail, as the value of the assets sold is insufficient to cover the debt supporting the assets. Also, it is not clear that the US can continue indefinitely as the source of safety. The US will be issuing many billion dollars of debt to pay for all of the bailouts. At some point, it may be difficult to find buyers for all the debt.

In the financial world, every evanescent money phenomenon is marketed as a long term change in fortunes. Internet businesses will put 'brick and mortar' stores out of business ... forever. Real estate will 'go up' ... forever'. Oil prices will soon be over $300 a barrel and gold has no upper limit ... forever!

Meanwhile, back at the ranch, the US economy is shrinking to a level relative to 'hard' capital; the nominal (cash) trade and government deficits are set to explode along with undeterminable unfunded liabilities; economic decision making is concentrating in the hands of fewer ... who are incompetents or criminals; administrative (discount) rates are set below the level of inflation and jobs are being shed by the tens of thousands, reducing both business and government revenue and driving the deflation cycle forward.

Obviously, the dollars is and will be strong ... forever! Why didn't I think of that? (Slaps self on side of head!)

The Treasury would like to see all the worlds' assets traded for dollars so it can sell it's vast amount of toxic debt into the dollar market. In that sense the Chinese State Newspaper mentioned in the main article is correct ... only for today. Tomorrow is another story.

Nobody can create debt to sell like the United States Government. Right now at the Treasury Department, there is an intern in a Ramones tee shirt slouched in a back room - not far from the loading dock - with laptop in lap and finger poised;

"How many zeros you want after that number, Boss?"

$9,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 ...

Following the script as it has played out so far, as soon as the dollar reaches a level where people on the street who know and care little about such things remark about the dollar's strength in casual conversation ... the Treasury will dump and the whole bubble will deflate with a whoosh.

I know that, Gail the Actuary knows that, the Chinese know that ... the Treasury HAS to know that ... right?

Will this be the 'last bubble'? I don't know!!! I thought the Fannie/Freddie bailout was the 'last bailout'. I was so wrong!

The potential for greater bubbles is only dependent on how effectively fear can be monetized. The fear of losing all; 'Double or Nothing!'

'Double or nothing, again!' It's only Monopoly money, after all. Other peoples' Monopoly money.

Lessee .... Dot Com Stocks ... residential real estate ... commodities ... now US dollar. Each bubble coming harder and faster on the heels of the last, faster and faster ... so fast it's hard to keep track ... each crashing in turn. Obviously an endgame of sorts to the unlimited- credit money policy - it has to be! The cycle is faster, more destructive bubbles. These bubbles are having greater significance overseas; bad real estate loans brought the banking system to its knees worldwide, the commodities bubble put millions on the edge of starvation. What happens next? There are too many nukes and Kalashnikovs ... out in the great world to be gambling so recklessly ... like idiots.

Ironically, if the US cancelled the banking bailouts, negotiated its debt with overseas creditors, decentralized business and cut its umbilical to the national till, encouraged organized labor, rationed fuel and energy, put limits on entitlements and announced a multi- trillion dollar energy and transport infrastructure upgrade ... the dollar would tank. People love the fantasy that endless money growth will make us all winners in the economic lottery.

When the Ferrari bubble hits, I'm ready.

What you're saying, Z, is that in a "Global" economy you've gotta have a "Global" Currency. A "Clearinghouse," if you will. A traffic cop.

The Dollar is It. When "push" comes to, "shove," they all run home to "Mama," and, "Mama" is the U.S. Greenback.

We've, somehow, got to get the money from the manufacturing, oil-producing nations to the customer (laboring) nations. Somehow, we've got to organize a mass lending from the U.S., Euro, Chinese, Russian governments (taxpayers" to the Azerbaijani, Ukrainian, Hungarian banks.

Jeez. Well, nobody said it was all gonna be "Easy."

It was like when the US was running a big deficit with Japan in the 1980's. The wisdom was the US was getting the goods and the japs were getting bits of paper in return. The same thing is happening with China, and the Chinese have just realised.

I'm not sure that is the way I see it.

I think they may have seen that the time was running out on exporting worthless dollars for solid commodities, and decided to do as much as they could now, to max out the credit cards, before time ran out. I am not inclined to think that people conspired to hurt other countries. I think that more likely they convinced themselves that the countries would truly be better off if they borrowed a lot of money and emulated the "developed countries". Of course, the time when commodity growth could be cheaply expanded ran out, making it much more difficult for these countries to repay their debts.

You might be interested in a post I wrote quite a while ago with Shunyata. It was called Monetary Policy and Weaseling Out of Debt.

I don't think it's been as blatantly planned out as what you say, but the fact is that the US Government (and others around the world) will try nearly whatever it can to keep the standard of living from dropping in the short term. Just as much as this means taking wealth from other countries, it also includes taking potential wealth from future generations.

Just like a company that doesn't care about the fate of the world, but only cares about this quarter's revenue or its current stock price, the government and most people in general are blind to future problems. They just want to get profits now.

Just think of how easily people can say "unsustainable". Nearly everything we do has long been known to be "unsustainable". In school, I learned about "renewable" and "nonrenewable" resources, and I knew that oil was nonrenewable. But that simple fact doesn't dissuade anyone from slowing their usage of nonrenewable resources until a crisis appears and they don't have the means to consume like before.

There is no question that the government is partially responsible for the commodity price collapse. The futures markets and naked short selling show that you can sell massive amounts of paper that represent commodities even if demand for those commodities is exploding. Take silver, for instance. We're currently going through the largest shortage of silver in history, as far as I know. I tried to order some today, and the company said that they might be able to get it to me by April of next year, and if not, I could get my money back. (Imagine if your local gas station told you that you could reserve your 10 gallons of oil - that you need to get to work today - for delivery in April!) Does that situation seem natural to you? Normally, with that demand, silver would be at $50, not $10. But there's much more paper silver out there than real silver, and the paper silver is being sold like at no other time in history. However, there will come a time when more people want to take delivery of silver (cashing in on those promises). This will crack the COMEX. It's like in 1971. Under the Bretton Woods system, the foreign countries could exchange their U.S. dollars for gold at a certain, unchanging rate. Well, there were more dollars (or paper promises) for gold than there was gold. France realized this and started demanding gold. This alerted the world that the gold price had been unfairly suppressed. Nixon then nullified the dollars' convertability into gold. This will happen again with the suppressed price! In 1970, gold was $35 per ounce (fixed). In 1980, gold was over $600 per ounce. Even when it was realized that gold was overbought and the price came down later, it still never went back down into the double digits. I expect that soon, the triple digits will seem very low. This price does not even take into account inflation. When you add that in, it becomes very easy to see why the government and corporations wanted to get the prices of commodities as low as possible in preparation for an explosion.

It seems to me that we need to look at future development in terms of the resources it will take to produce this development. I am not as convinced that long-term debt will work for this purpose. I should write a post trying to explain better why. Long-term debt works well when available resources are expanding, but much less well when available resources are shrinking.

I expect that the use of long term debt will greatly contract (nearly disappear), as lenders gradually come to realize that with shrinking resources, it is very difficult for debtors to pay back their loans with interest. The risk of default becomes very high. By the time the risk of default is properly priced into the system, interest rates become so high that virtually no investment can make a high enough profit to afford the loans. When this happens, most financing has to be done through savings, or through government programs (using tax revenue to buy resources for development).

I don't see continuing big deficits for very long. At some point, the fiction that anything is being accomplished by raising debt and buying it back ourselves evaporates.