You are old enough to remember when the premise of China controlling or dictating policy to the United States would have been considered science fiction. Yes, there are fluctuations, but so far the plan to have Robert Rubin run the USA hasn't been a roaring success for the nation.

It is hard to define 'confidence' or figure where it comes from, but when investors in credit default swaps (usually banks and hedge funds) act on the sense that the US Treasury will default (either the old fashioned way or by devaluation- by- monetizing) this should be taken seriously. The Treasury spread in spring of 2007 was around 2 basis points.

So ... how does one generate confidence?

- In 2007, the Fed balance sheet was $900 billion and all Treasuries. It is now $1.9 trillion and is all junk or worse. If the Fed's balance sheet was similar in extent to the 'good ol' days', the Fed could be accused of neglgence, but becoming the buyer of last resort for all kinds of crap indicates the Fed doesn't know or care or is bought off. Not a confidence builder ...

- The dollar is trading against currencies of countries that are also facing economic hardships. If the hardships continue, the dollar will trade strongly against them ... but is a world- wide recession/depression the price that must be paid for a strong dollar? How dos that inspire confidence?

- The incoming president has an economic team that includes the same people who created this mess in the first place! Where is Phil Gramm? I bet Obama has his phone number. If O'Bama had one decent economist rather than his museum collection of 'Powerful White Dudes', it might be possible to have some confidence in the government getting a handle on the situation. Right now Obama acts as if he doesn't know enough, which means he's not qualified, or he likes to watch people argue which means he is interested in winning elections but little else. How can either generate confidence?

- The incoming president refuses to tell the truth about US petroleum dependence. He's won the election already, he has nothing to lose! He either knows and is lying or he is ignorant and refuses to learn ... just like the millions of other 'Peak Oil Deniers' who populate suburbia. In either case he is not doing his constitutional duty to defend the country; he is already a sitting Senator and he has an obligation! How can this be a confidence builder?

- The level of corruption in business and government is profound. What is needed is a 'force'; an individual with fierce determinatioon and high competence to ferret out wrongdoers and put them in prison where they belong. Someone who can put the word 'honest' alongsode 'government' so that people don't laugh. Why not hard- hitting Andrew Cuomo as Attorney General rather than another Clinton hack? Eric Holder was easily bought off by Marc Rich. Having a corrupt Attorney General is hardly a confidence builder.

- The institutions that bought stock/bonds/commodities in order to 'keep the markets liquid' ... or some other rationalization for manipulating them ... have gone out of business (Lehman Brothers) or have no more credit (Citigroup). The Fed is the last remaining player and they still do (and have and will continue) to manipulate the bond market. Without 'pricing support' ... a floor under prices, the markets swing wildly. Commodities swing down today, swing upward tomorrow. As the market capitalizations shrink, smaller amounts of capital can have the effect of moving prices, in any direction to a very large degree. How can the market gyrations generate confidence ... in markets?

- The price relationship of supply and demand still works. The oncoming massive expansion of supply of Treasury securities will certainly affect price; it has to. If it didn't it would suggest market mechanisms are broken. If it does ... it suggests the Treasury is reckless. Neither condition is particularly inspiring. At the same time, the Fed will force prices higher by buying all Treasury bonds with counterfeit money; it will manipulate the market until it cannot do so any more. The charade will end, the resulting bond bubble with burst. Does this inspire confidence in the bond market, the Fed and the Treasury?

Trust and confidence are fleeing the market institutions. The US government is not immune from these forces. Unless confidence can be maintained in the government and its proxy - the dollar - investors will eventually refuse it in favor of other stores of wealth, be these commodities like gold or silver or petroleum or even raw land. It would be ironic if the value of real estate is, in the end supported by the collapse of the dollar.

What a confidence builder!

"The dollar is ``going to lose its status as the world's reserve currency,''

That statement very well may be true. (Just as Paul Krugman's forecasting a recession every six months for the last five years is now true.) But how long before this happens and it may pass with a whimper rather than a bang. I was around when the US stopped settling balances with gold and citizens could start purchasing gold. Life on main street pretty much went on as usual.

LIfe in main street is far from normal, today. It is the beginning of the recession, the effects of it on the dollar have not been felt, yet. When this happens it will be noticed on main street.