The crisis in the dollar is affecting everyone

 "As our circle of knowledge expands, so does the circumference of darkness surrounding it." Einstein put it succinctly, and it is what investors must –though very reluctantly--- face a little later in the continuing dollar crisis. Still, bubble-watching pundits continue to predict the end of the crisis, saying the US consumer will ultimately support production up and up….

But unless these figures are total fabrication ---$146/barrel for oil and $982/ounce for gold--- the situation is simply difficult to extricate from. The real ‘demand destruction’ that may happen will be to those people who continue hiring money managers who don’t manage risk. The final danger is the elimination of many in the 25,000-odd hedge funds, which danger, sorry to say, is now very obvious and looming.

Bernanke and Paulson may in the final part get blamed for the dollar’s devaluation. Diminution of global risk will still result to the US and global investments markets selling, causing a whirlwind of litigation and redemption actions. There may be opportunities there, true, but they may be only for those who have liquid portfolios.

The silver lining here is that Bernanke and Paulson have lately been shown to toe the political line when prompted. So as markets plummet, these guys supposedly managing the global reserve currency may, after all, dance to the tune of cold reality. Simply because they didn’t acknowledge its presence does not mean reality is non-existent.

Asia took on the facts and did something, even crushing the markets anew after the Bank of Japan  revised its growth prediction to just +1.2% for this year. It may be ‘cheap’, but it may still get ‘cheaper’ as growth slows down and prices rise in a stagflation.
After the dropdown of another 2% by the world’s second largest economy, Hong Kong stocks followed those exiting for China-India. Asian performance was therefore very discouraging: China down -3.4%; Hong Kong -3.8%; Taiwan -4.5%; Korea -3.2%; Thailand -3.1%; and India sank another 4.7% (to -9%) as an aftermath of Fitch cutting off their country credit rating.

The phenomenon is really worldwide now, people. Selling resumed in London today after the bounceback yesterday, but the FTSE market is still down -1.3. Yet this is much less than what is occurring elsewhere: crashes in Ireland and Denmark, who are down again 2% and 3% respectively, and Romania is down -3.5%, to mention a few.

A real crisis is on hand, and it is bound to worsen unless someone rational gives the impetus to let free enterprise market banks, investments and even houses. Relying on government’s artificially-created models will not be realistic in the final analysis. What we need may be something short of a miracle.