Maybe like the concussive rebound of a deceased feline?

I must admit I was pretty close to converting my NOK morgage into USD about 1.5 months ago, but I didn't. Not because I don't believe the dollar will continue to decline, but because I know I don't know enough about international currency trade for it to be safe. I do know there are very strong state and other actors that don't play that game rationally (i.e. are in the game to make money)

But seriously, I don't understand why the dollar won't collaps to a near worthless state. It seems to me to be the most logical way to get rid of the US accumulated debt, both on a federal, state and consumer level. The US should just print a gazillion of greenbacks, eventually making them all worthless. Then it should create a new currency/currency standard and promise to start behaving much more fiscally reponsible. The rest of the world would accept this, mostly for a lack of any alternative. And the loosers would be all them pesky foreigners holding dollars, not the US.

When I read news I see every indication possible that the US has NO fiscal responsibility and is in fact printing money as fast as it can get away with. Giving out free money to all citizens was IMHO pretty indicative, and the feds constant special-rescue-giveaways, etc don't exactly change the pickture.

Someone please convince me why the dollar won't become worthless?

BBC

scroll a tad, it looks mighty red

A financial forest fire out of control

* Larry Elliott, economics editor
* The Guardian
* Monday March 17 2008

The Federal Reserve does not make a habit of breaking into its weekend to cut interest rates. Indeed, the last time it did so was almost three decades ago, in 1979.

So the action taken yesterday to cut the discount rate and to provide $30bn (£15bn) to allow JP Morgan to buy Bear Stearns at a knock-down price was momentous. As one analyst put it: "These are massive, unprecedented actions and their gravity is likely to scare the markets to death."

The mood today was certainly as bad as it has been in living memory. Money markets were literally petrified, frozen into a state of complete inertia; stock markets in Asia and Europe fell heavily; Wall Street was manic depressive, down one minute on fears that another big beast could go the way of Bear Stearns, up the next on rumours that the president's Plunge Protection Team was about to be sent into the markets.

What has happened is this. The problems that started to surface in the US sub-prime mortgage market a year ago were like a cigarette butt thrown carelessly out of a window in the middle of a forest tinder dry after months of drought. Twelve months later a forest fire is raging out of control and the Federal Reserve is desperately trying to build some fire breaks to stop the inferno spreading.

Will it work? Nobody really knows, but it would be a miracle if there were no further casualties from what Alan Greenspan is right to call the most serious financial crisis since the Great Depression. It's a sign of just how bad things are that it would now be considered a relatively good outcome were the only further casualties to be a bunch of over-exposed hedge funds. The emphasis now is on safeguarding the absolute core of the US financial system.

As with any rampaging forest fire, it would be wrong to assume that the Fed is in control of events. It is, however, seeking to make the best of a very bad job by first sorting out the mess at Bear Stearns before moving on to the next two stages of the rescue operation.

The next phase will come tomorrow with a cut in the Federal Funds rate. That will now probably be a full one percentage point reduction, and the central bank will have little difficulty in justifying the reduction in the light of figures today showing US industrial production down 0.5% last month. The world's biggest economy is in recession and that recession is starting to look like it will be a deep and painful affair.

The third stage will be for the Fed to get together with other central banks to organise co-ordinated intervention to support the dollar. Washington can hardly expect Sovereign Wealth Funds to help recapitalise struggling Wall Street banks if it shows supreme indifference to the level of its currency, so action can be expected on this front some time in the next couple of weeks.

March 17, 2008
A Real Freak Out

Things are getting very weird very fast -- and will probably get even weirder, faster, as the train wreck of bad debt meets the Saint Paddy's Day Parade of bacchanalian excess at the grade-crossing of destiny. The train is carrying America's financial system, but the engine driving it is peak oil, because declining energy resources necessarily means declining capital wealth -- and declining value of all the institutions, instruments, and markers that denote that wealth or hope to profit by trading in it. The fiasco leads straight to the necessary reinvention of American life on other terms and by other means.

I've maintained for a long time that, even among those who recognize we have a big problem, there are many impediments to imagining a credible outcome. One thing I've noticed is that in any given public meeting (or lecture hall) you can divide participants into two groups: those who believe we will 'high-tech' our way out of this predicament; and those who believe we'll organize our way out.

I don't subscribe to either point of view, strictly speaking. Both POV's assume that there will be an orderly transition between where we're at now and where we're headed. They're tainted by the kindergarten ethos of entitled happy endings and outcomes, which has been the chief operating system for the Baby Boomers, a therapeutic bias for placing 'good feelings' ahead of reality -- which also has obliterated the tragic sense of life that acts as the only brake on humanity's inherent hubris.

Ultimately, in my view, the issue of what happens next will be settled not by the fantasies of the algae-biodiesel geeks or the wishful thinking of the sustainable futures organizers, but by the natural, self-organizing properties of a society responding 'emergently' to new circumstances. One of the implications of destiny-as-emergence is the probability that we will try any damn fool thing besides the right things to keep the old game going for a while -- even in the face of obvious failure.

I'm sure our political leaders will mount a campaign to rescue the futureless infrastructure of suburbia. It will necessarily be an exercise in futility. But it has already started. That's what the swindle of ethanol has been all about. And the touting of hybrid cars, and the flimflam of "energy independence." Even the "environmental" crowd" squanders most of its attention these days on how to keep all the cars running on something other than gasoline. They don't question the assumption that we will remain a car-dependent society.

As much as I loathe the suburbs in their grotesque late-stage efflorescence, I can understand why those stuck in them would wish to defend their misinvestments. I just hate to think of the political consequences when their disappointment catches up to the reality that the suburbs will not be rescued. And by that I mean not just the houses but the way-of-life associated with them and all its accessories, furnishings, and activities. Bewilderment will soon turn to rage out in the highway-strip-and-cul-de-sac empire.

Now, apparently, we'll also opt for a bail-out of all those who tried to become rich by getting something for nothing at both ends of the Ponzi scheme called the housing bubble -- the "little guys" who signed mortgage contracts they could never hope to pay off, and the Wall Street playerz who bundled these hopeless contracts into fraudulent securities (and their enablers in the ratings agencies, plus the hedge fund smoothies who tried to cash in by using recondite algorithms to dissolve the risk associated with imprudent lending.) The bail-out is likely to accomplish nothing except the more rapid bankruptcy of government at all levels and a second Great Depression at ground level (worse than the first one).

Over the weekend, the Federal Reserve engineered a $30-billion dollar Saint Paddy's day present for the JP Morgan bank by handing them the corpse of Bear Stearns. The object of the game is to prevent the "assets" of Bear Stearns from going to the auction block, on which they would be discovered to be nearly worthless, which would instantly render all similar assets held by the other big banks to be similarly worthless, and would result in a universal margin call that would pretty much unwind the hallucinated "wealth" acquired the past ten years.

Despite the heroics around the fate of Bear Stearns, it looks like the financial system is tottering anyway. Perhaps the last trick left in the rescue bag will be the 100-basis-point drop in the Fed rate rumored to be announced tomorrow. It won't help any of the big banks, since their problem is holding liabilities in excess of assets. Almost certainly it would crater the US Dollar.

The next thing in store for America, in my opinion, will be a rather new surprise: oil-and-gasoline shortages. While frightened money pours into the oil futures markets, driving the price up, strange behavior will start brewing in the actual physical allocation process. Imports of oil and gas to the US may not be as reliable as it had been when America seemed to be a solvent nation. The exporters may be changing their terms of doing business with us -- and that's nearly two-thirds of all the oil we need. The public would probably suck up oil price increases indefinitely, but shortages are going to be something else. A real freak out.

I did inhale.

Disasters are a statistical certainty, in the long run. It takes much less for things to go wrong than not. Any system can go wrong when a small subset of its parts malfunction. The chance that all parts will work well at all times is way smaller (zero, in the long run) than the chance that at least one part will fail at some time (one, in the long run), producing a disaster.
So, predicting disaster at some point in the future is a no brainer.

Soooo if the worst happens and the dollar turns to pennies, how do we eat? Seriously . . . Is the key that we buy domestically produced food, and so our dollars rank the same as the dollars the food producers want?

Asia Times Online
By Martin Hutchinson

On August 27, 2006, this column suggested that US house prices would fall by 15% nationwide, peak to trough. On March 11, 2007, this column suggested that the total bad debt loss from the mortgage crisis would be about US$1 trillion. At a meeting at the American Enterprise Institute Wednesday, it became clear that in both cases I was not pessimistic enough. Sorry!

I was probably closer on the bad debt loss. At AEI, Nouriel Roubini suggested that the total credit losses from the housing meltdown would be about $3 trillion, but on inspection his figure included credit cards, credit default swaps and a whole host of other non-housing items. From housing alone, Standard & Poor's has now admitted to $285 billion among financial institutions (plus untold amounts among investors such as pension funds that are

not financial institutions) while Goldman Sachs, generally somewhat optimistic, has proposed a figure of about $500 billion. I believe that both those figures are low, but that my original $1 trillion figure, which included losses to investors of all types, may be only modestly low. The final figure might be closer to $1.5 trillion, or about 13.5% of the $11 trillion pool of mortgage loans.

The house price decline from top to bottom will now pretty clearly be larger than I predicted. The decline in 2007, according to the Case-Shiller index, was almost 10%; more ominously, in the fourth quarter of 2007, prices were dropping at a 20% annual rate. It thus seems unlikely that the overall decline in house prices will be limited to 20%, and more probable that when prices finally turn, they will have dropped 25-30%, with drops of as much as 50% in some heavily speculative markets such as much of California. This is an exceptional outcome by US standards, ranking with the 1930s as a house price downturn, but it must be remembered that in Japan Tokyo house prices dropped by over 70% from their 1990 peak before stabilizing.

The depth of house price declines has a near-exponential effect on mortgage defaults, since a borrower can walk away from a home mortgage without declaring bankruptcy - the transactions are generally non-recourse. Roubini estimates that if house prices decline 20% 16 million mortgages would be "under water" with principal amount greater than the value of the underlying asset, and that 50% of those underwater mortgages will default. If house prices decline 30%, 21 million mortgages will be underwater, with the same percentage defaulting.

At the lower price decline, that seems to me a little pessimistic. A borrower who can make payments on his mortgage, and whose house is temporarily worth 5% or even 10% less than the mortgage is unlikely to default, if only because he has to live somewhere and moving costs, let alone real estate brokerage costs, are substantial (he would also damage his credit rating.) Thus once we get beyond the universe of people who should never have had a mortgage in the first place, a moderate decline in house prices does not necessarily hugely increase defaults. However as price declines approach the 25-30% level, let alone the 50% that is possible in California, the percentage of mortgages defaulting is likely to rise sharply.

It is clearer now than it was a year ago that losses in housing debt will not be isolated. They will lead to losses in credit cards, leveraged corporate loans, automobile loans and most areas of the credit economy. Even emerging market debt, at first sight insulated from the problem, is in practice endangered by its concentration in Latin America and Russia, both dependent either on the US economy itself or on the high oil prices to which US easy money policies have led. Finally credit default swaps, with an outstanding volume of an extraordinary $50 trillion, appear to be an accident waiting to happen. Thus a mere $1.5 trillion in housing debt losses may indeed produce total losses of $3 trillion or more when collateral damage is included.

Not all of those losses will be felt by financial institutions, although the extraordinary appetite for risk that such institutions have exhibited over the past decade suggests that a high proportion of them may indeed come to rest in the financial area. If that is the case, we have a problem: the total capitalization of the US banking and brokerage system is only about $1 trillion.

The Bear Stearns intervention on Friday was a first symptom of what we can expect. (The Northern Rock disaster in London was a case simply of appallingly inept regulation of a bunch of hyper-aggressive used-car salesmen who moved into the home mortgage business.) Bear Stearns, while not without its reputation for sharp elbows, is a major house with an important market position. It was more concentrated in the mortgage business than several of its competitors, but that may simply have led the tsunami now approaching the world’s financial system to reach Bear Stearns first.

No exemption
If Roubini is anything close to right as to the total size of the disaster, and it spreads as appears likely to areas beyond mortgages, then there is no reason to believe that any of the world’s major financial institutions is exempt, although in practice some of them will have been exceptionally conservative in their adoption of new financial techniques or will have concentrated their business in areas such as emerging markets that are relatively less affected.

As the mortgage blow-up has shown, many of the "modern finance" techniques that have been designed in the last 30 years have shown themselves fatally flawed. Of all such innovations, probably the one posing most current danger for the world’s financial system is the credit derivatives market.

more

gold sold off and the dollar rallied a bit. This was supposed to be the end of the world for the dollar and the next big boost for gold as "everybody" new. If the dollar starts to rally, I say stocks sell off.

The dollar did bounce a little today.

Saudis aren't happy about being tied to a falling currency. 12% devaluation in 3 months. At the current rate we're looking at something along the lines of a 1/3 reduction of the value of a dollar in a year's time. Kind of puts stock market "gains" into new light.

I did inhale.