Fed Watch: This Is Not Good

Tim Duy says the Fed is in "something of an untenable position, to say the least":

This Is Not Good, by Tim Duy: Presidential candidate Barack Obama summed up the Fed’s dilemma today. From Bloomberg:

''The Fed is in a tough situation because it wants to control the inflation being caused by energy while at the same time trying to restore the economy,'' he said.

One tool, two objectives – something has got to give. The Fed is not blind to their dilemma, and today Fed Vice Chairman Donald Kohn said monetary policy has reached an impasse domestically, and implores emerging market economies to start doing the heavy lifting on inflation fighting. From the Wall Street Journal:

“The upward trend in prices of food and energy over the past several years…importantly reflects the pressures posed by rapidly growing demand in developing economies against relatively inelastic global supplies of commodities,” Kohn told a monetary conference in Frankfurt.

And “in those countries where strong commodity demands are associated with rapid growth in aggregate demand that outstrips potential supply, actions to contain inflation by restraining aggregate demand would contribute to global price stability,” he said.

Kohn’s analysis sounds remarkably close to my own – Dollar bloc nations are effectively tied to Fed policy, and that policy is simply too easy for the those economies. But not to easy for the US, which puts the Fed in something of an untenable position, to say the least. Kohn is making an obvious effort to shift the blame for rising commodity prices away from the Fed, because, as is well know, it is never the Fed’s fault, whatever the problem (actually, the US Treasury deserves some of the blame, for using the IMF like a club during the Asian Financial Crisis).

Kohn’s is urging the Dollar bloc nations to raise interest rates while the Fed holds steady. This appears to be at odds with dollar supportive Fedspeak, although I suspect that rhetoric is largely directed at the major currencies. Still, could the Fed really want a fresh bout of Dollar weakness? Indeed, some Asian nations are already selling dollars to support their own currencies, even before Kohn’s speech. Interestingly, I suspect this will put the Fed into another inflation bind. If the Fed is correct and the rise in commodity prices, and specifically oil, is predominately due to global demand, rather than the Dollar’s decline, then higher rates abroad could help soften the foreign currency prices of commodities. But it is not inconceivable that a fresh bout of Dollar weakness raises the dollar price of those commodities.

In other words, the US has benefited by the foreign willingness to accumulate Dollar assets; it allows the US to consume well beyond productive capacities without, until recently, inflationary consequences. If the rest of the world is implored to tighten policy and weaken the Dollar, then I suspect those positive inflation dynamics will be reversed. The Fed effectively replaces one inflation concern with another by advocating what amounts to a Dollar drop.

In any event, it is not clear that the Fed can implore enough nations to tighten rates to have a meaningful impact on global growth. As Brad Setser reminds us, Dollar policy is inconsistent – the US government wants Asian nations to accept a weaker Dollar, but not oil exporters. And massive reserve growth in China suggests that nation is not interested in accelerating the appreciation of the yuan anytime soon.

Which is something of a good thing given that while Kohn is imploring the rest of the world to tighten policy and effectively let the Dollar go, the odds of a second stimulus package are rising. Obama again:

Democratic presidential candidate Barack Obama said the U.S. will continue dealing with ''short- term pain'' from an economic slowdown and the country needs a second round of stimulus checks to spur consumer spending.

''We know that consumer confidence is at all-time lows. We have to give people some sense that they could absorb the rising costs in gas, food and medical care,'' Obama said in an interview with Bloomberg Television today in Pittsburgh.

The US needs the rest of the world to buy that debt necessary to support the stimulus. If not China and the rest of the Dollar bloc nations, then who? Is it any wonder that financial markets are in disarray? From MarketWatch:

I can't remember the last time Dow futures in freefall the way they've been today," said Dale Doelling, chief market technician at Trends In Commodities. It's "an absolute boycott by buyers in stocks and the dollar."

But "the exact opposite happened in the commodity markets. You name it, oil corn, gold bonds -- everything up, up and away," he said in emailed comments.

Also providing support for oil Thursday, Algerian Energy Minister Chakib Khelil, who serves as president of OPEC, said oil prices could jump as high as $150 to $170 dollars a barrel this summer, according to reports.

However, he thinks crude will fall short of $200 a barrel. At a meeting in Paris, Khelil said a further fall of 1% to 2% of the dollar vs. the euro could add another $8 a barrel to oil prices. He cited the weakness of the greenback as a major cause of spiking oil prices.

The failure of the FOMC to issue a more hawkish statement weighs on the Dollar and pushes commodities upward, which only adds to the misery in US equities. But if the Fed hiked rates, financial markets might implode.

This is a no win situation...which way will the Fed turn? The Fed will hold the current policy in place until policymakers becomes sufficiently distressed by the impact of energy price inflation (September, October, next year; just not August). Note that market participants are increasingly aware that the Fed’s default policy for the time being is higher inflation, as evidenced by the rise in 10 year TIPS breakeven levels to 254bp today.

In theory, the best outcome is to find is a sweet spot that allows global growth outside of the US to decelerate while avoiding a free fall in the Dollar. In the absence of such equilibrium, the US economy can hobble along only as long as the following three conditions hold:

1. The Federal Reserve can maintain easy monetary policy.

2. The US government can sustain repeated fiscal stimulus measures.

3. China and the rest of the dollar bloc continue to be willing to accumulate US assets, primarily the Treasury debt needed for fiscal stimulus.

When these conditions no longer hold – such as the Fed needs to tighten to counter energy inflation, or the demand for US debt drops sharply – then I suspect the US economic environment will shift decisively toward higher inflation or significant recession.

Or both.

Comments

[JKH]

Super excellent post.

[howard]

there's an old wall street saw: when are you early and when are you wrong.

as a select set of friends of mine (and certain readers, like anne) know only too well, back in about 2003, i predicted stagflation lite and an insoluble monetary policy dilemma as the logical culmination of Bush League Economics.

the weak job market and stagnation of real incomes have therefore been no surprise to me, but whether we were ever going to reach stagflation lite, was, for a while, a question of the sort i referenced in my first sentence.

but i can now say: i was early, not wrong.

[Fred]

Economies are like supertankers. It takes a long time for them to speed up or slow down. Also, when the United States sneezes, the rest of the world catches a cold. Put these two sayings together and what you get is this. Aggregate demand is crashing in the United States, rebates or no rebates, low interest rates or no low interest rates. Eventually, that will affect the East Asian exporters (China, Korea, Japan) and their demand for commodities will fall. Sure those exporters could ramp up government spending to overcome reduced exports to the US, but that takes time. Meanwhile, commodities supply is ramping up everywhere. The conclusion is obvious: commodity prices will continue to go up for the rest of this year, which translates into higher CPI in the US, and then sometime in 2009 (if not sooner) those commodity prices collapse in the mother of all commodities busts.

[macburger]

Greenspan bubble chickens are coming back home to roost.

This problem will be fixed only after his ridiculous bubble policy is recognized as the con job it was, and universally denounced and discredited.

[Jas Jain]

--
"then I suspect the US economic environment will shift decisively toward higher inflation or significant recession."

How about depression and deflation? Must be beyond the thinking ability of most economists.

Jas

[Duff Samoa]

I don't understand why the US and emerging countries couldn't agree to do 2 things..

Firstly the US rolls back it's mandated ethanol production quota and in turn emerging economies lower their subsidy on petrol. That way you do 2 things:

1) Emerging countries have a lower demand on oil due to higher price (lowering oil price)

2) less corn is diverted to ethanol (essentially a convoluted gas to liquid process) hence increasing supply of corn, and hence lowering the price, so that those in emerging countries have less to worry about as far as food is concerned.

I imagine you would be in a much better situation if this occurred and the fed could worry about improving the economy.

[Dickeylee]

Hey Duff, that won't sell in Iowa! Despite the floods, the rural economies are thriving, and those ethanol subsidies are just the tip of the iceberg in God's country. The USA's biggest welfare queens now drive their Case Tractors up to the USDA office to pick up their welfare check.

[chris]

The adjustment that is needed and that will occur can be summed up quite simply: the US lowers its standard of living, by considerable. The contradictory pressures discussed in the post will force that solution. It's coming. And with it will come a Democrat administration and Congress.

[Winslow R.]

Tim wrote: "The US economy can hobble along only as long as the following three conditions hold:

1. The Federal Reserve can maintain easy monetary policy."

**They set monetary policy so unless Obama/gov throws them out, will not be a problem.

2. The US government can sustain repeated fiscal stimulus measures.

**Government spending is only politically constrained.

3. China and the rest of the dollar bloc continue to be willing to accumulate US assets, primarily the Treasury debt needed for fiscal stimulus.

**Tim suggests replacing the housing bubble with a government debt bubble? Hello Japan's path with an inflation twist.

When these conditions no longer hold – such as the Fed needs to tighten to counter energy inflation, or the demand for US debt drops sharply – then I suspect the US economic environment will shift decisively toward higher inflation or significant recession.

Or both."

**These are not market conditions but undesirable political choices. When Tim can find a majority of people to vote for a significant recession he will get one. Until he starts advocating higher taxes to address higher inflation he will have that too. For ideas on taxes, I'd follow Paine's proposal and start with a windfall profits tax on oil companies which would be tax rebated to the American people to encourage substitution away from oil.

[Brad Setser]

tim -- wouldn't a deceleration of global growth (relative to US growth) be dollar-positive?

[esb]

I was in the local Target last evening and saw a woman with a cart stuffed with rolls of aluminum foil, 75 sqft and 200 sqft rolls.

I asked her why she needed so much aluminum foil, did she have a restaurant and suddenly ran out?

"No restaurant. It was $1.49 for the "75" last year and now it is $2.19. 50% higher in a year," she stated and pushed off.

I walked over to the foil isle and noticed that the "75s" and "200s" (Target brand) spaces were empty. She took the entire shelf stock.

I picked up a nearby courtesy phone and summoned an employee to the isle. He arrived in under a minute.

I asked him if there was any back stock. He scanned the shelf with a device of some sort and reported that there were two cases of the 75s but none of the 200s.

I told him to bring out one of the cases, and I bought it.

Each roll will be $2.99 (or more) next year.

Yeah, we's in a whole heap o' trouble here, with a central bank staffed with buffoons who think that inflation is a rational policy led by an academician who pronounces that we are at an impasse.

Fasten your seatbelts, though I doubt that they will be able to save you from this one.

[Clear Trends]

The trends are clear, even if traders find short-term reason to bid up dollars against other currencies. Faith in the Fed is low and heading lower. The clowns had the gall to announce steep cuts are over, with the rate at 2%. Only a matter of time before the disgust spreads world-wide.

Farm belt and energy producers should do fine. Everyone else will be a lot poorer, as our monetary authority tries to maintain a pool of fools buying the dollar all the way to the bottom.

Only then the con job bubble policy of all these years will be recognized by most people. Can't wait for the CYA posts by the pundits to follow.

[Internal Contradiction]

"Note that market participants are increasingly aware that the Fed’s default policy for the time being is higher inflation..."

This is basically inconsistent with the need to borrow huge amounts of goods/services from abroad.

"China and the rest of the dollar bloc continue to be willing to accumulate US assets, primarily the Treasury debt needed for fiscal stimulus."

The standard game plan seems to be to borrow more than can possibly be repaid, and then inflate the debt away. Domestic savers grew weary of the game, and switched to inflation hedges (homes, stocks, etc...) instead of lending their savings out. Thus the need to borrow everything from overseas, but eventually even overseas savers will grow weary of having their savings inflated away.

Two mandates, one tool. It just doesn't work. Tweaking the short run Phillips curve to eliminate an output gap that can only be wildly guessed at results in consistently ripping off savers. Savers eventually get tired of being ripped off, and switch to inflation hedges. At that point, there is no one left to borrow from. Monetizing the debt works until workers/pensioners ask for COLAs, and then a wage price spiral stagnates the economy.

[The Plan]

“The upward trend in prices of food and energy over the past several years…importantly reflects the pressures posed by rapidly growing demand in developing economies against relatively inelastic global supplies of commodities,”

Yes, they want to raise their standard of living.

“in those countries where strong commodity demands are associated with rapid growth in aggregate demand that outstrips potential supply, actions to contain inflation by restraining aggregate demand would contribute to global price stability,"

If only other countries would use less oil, we could fill the tanks on our very large SUVs inexpensively, and heat our McMansions for a song. Maybe we can talk other countries into volunteering to stop using so much oil so we can have more. This is the plan?

[Repay]

"In other words, the US has benefited by the foreign willingness to accumulate Dollar assets; it allows the US to consume well beyond productive capacities..."

Er, did anyone explain that foreign citizens actually expect the US to repay those goods/services they let US citizens consume now? Maybe someone should have explained to foreign citizens that US citizens love to borrow, but don't like to repay.

[Sandman]

It is what it is. The dollar and rates need to head lower to stimulate the economy. The commodity bubble is a pest, but one we must deal with. 150-155 oil is a sure thing now that equities have flown into treasuries.

The FED is powerless.

[Oupoot]

I'm sorry for the next US president - he is setup for failure. It is highly unlikely the US will get out of this impasse for at least 2 years, maybe more. Many more thousands of people will see their standard of living drop as they have to face economic reality. And though it will be proper to blame Bush (who will live nice and cosy on his ranch in Texas with Secret Service to protect him), the electorate will blame the govt of the day.

The hard fact is that for the US to recover its economic health will take hard work and many hard sacrifices - whether the politicians and policy makers like it or not.

[a]

"I can't remember the last time Dow futures in freefall the way they've been today," said Dale Doelling.

Well maybe because he's twenty-five years old and has the institutional memory of a child?

[hari]

What options does Fed have next (month) when ECB decides to jack-up its rates to counter inflation? Will the dollar sink or swim then? What will SWFs do if their dollar holdings meltdown? BB is getting himself into a (policy) impasse from which he simply can't contemplate a either/or choice, I think. Or is he simply buying time...minutes of this weeks FOMC meeting will be telling, if there was a serious argument.

Kohn is telling (next day) in Frankfurt to outsource global inflation fight to emerging markets, according to WSJ.

[yamada]

Here is another tool, which makes two tools for two objectives. The new system as below… if it is to be established. This ruled system secures equality and oust moral hazard.

1. Every economic unit’s(including banks) assets that caused the bubble(real estate or CDO et al) on balance sheet should be evaluated on mark to market basis by the authorization of a independent third party(maybe auditor), which brings about some insolvent(i.e. debt section surpasses asset section on balance sheet) economic units.
2. FRB decide to write off a certain amount of the loans to the banks, which amount distributed to each bank according to the amount of each banks’ insolvency, calculated on 1.
3. Every bank that gets profit from written off should next enforced to, by using the profit from written off as original fund, write off its loans to its each debtor, according to the amount of insolvency of each debtor. If the bank is unable to use all the written off profit it earned, the remainder is taxed all.
4. Other economic unit that gets profit from the written off by the bank should next enforced to, by using the profit from the written off as original fund, write off it’s loan(or trade claim) to its each debtor, according to the amount of insolvency of each debtor. If the economic unit is unable to use all profit it earned, the remainder is taxed all. These processes are to be repeated.
5. In consequence, the bubble portion of the targeted asset is extracted from the economy, and is transformed to tax claims.
6. It’s up to the Government how they dispose of their above tax claims, considering the situation of economy, of each bank and of each economic unit. Talking about the latter two, as a option the Government should examine the possibility of the bank’s and economic units’ turnaround, together with the other creditors, remaining desirable debt to the bank’s and economic unit(empirically it's ten to fifteen times annual earnings before interest, taxes, depreciation and amortization, known as EBITDA, of the economic unit), writing off the rest debt, with taking into account the value of disposable collateral(that do not accrue earnings), of guarantor and of consolidated basis.
7. Every write off must be supervised and traced by centralized function of the system. So every write off must be executed through this function. Every write off may be done through this function, which exist on internet for access.
8. For cross-border. For each non-residential economic unit, the amount of write off should also be calculated in the same way as 4. , on the only cause from specific asset depreciation in the resident country. Economic unit that will be written off should next write off in the same booked currency. In case profit of the written off exists on the non-residential economic units, it's taxed and absorbed by the foreign(=non-residential) government and handed over to the sovereign(=residential) government of the currency, based on treaty.
9. In case inflation expectation exists, the system enables FRB to on one hand raise benchmark rate to cope with inflation expectation, on the other hand restructuring the balance sheets of economic units.
10. FRB should carefully watch the rate of the number of insolvent economic units to the number of all economic units in the US, when deciding the amount of the loans(trade claim) written off on 2.

For further details, please see the blog as below:

http://reversewealtheffect.blogspot.com/

[hari]

I can't remember now where I read this yesterday -

IMF has finally been given go-ahead by GWB/WH to analyse and report on US financial system and nature/type of structural adjustments required to put the house in order. I understand IMF will have *power* under its Boards Authority to demand relevant (sectoral) reports from institutional operators in the financial sector including Treasury. Bush has reportedly asked IMF not to complete the study before he departs....I suppose he's passing the buck, as usual.

[Dwight Cramer]

Ouch, that business about Treasury using the IMF as a club ten years ago hits pretty close to home. From the tenor of this note, I get the sense that we have a passing of the club (in more ways than one).

Guys like Kohn have a mindset that results from coming of age in the mid-twentieth century, but they cannot be oblivious to the possibility that a quite rational strategic posture for emerging market governments with large dollar holdings will be to keep the patient (the U.S. economy) alive only as long as they need it for a customer. Then, if their internally directed development strategies succeed over the next five years, they can pull the plug and see what happens. The Chinese domestic press is already squawking about the loss in yuan denominated terms of China's dollar holdings. Anybody who thinks that is just a public outcry and not the view of a non-trivial faction in the party does not understand how an authoritarian state considers, evaluates and eventually makes, policy changes. For a minor example of that, consider the on again off again use of Japanese military aircraft to deliver emergency supplies to Sichuan after the earthquake.

I don't mean to dwell over much on only one of the three conditions you've laid out. As things play out, before the dollar block countries lose their collective appetite for the USD, I suspect the Fed will run out rope on its monetary easing because of continuing inflationary pressures from rising commodities prices, particularly given what rising gasoline prices have done to the colloquial inflation expectations of the general public. I liked the comment about wanting a strong dollar in the Middle East and a weak dollar in Asia.

Now, that's getting between a rock and a hard place . . .

[don]

'3. China and the rest of the dollar bloc continue to be willing to accumulate US assets, primarily the Treasury debt needed for fiscal stimulus."
Without the mercantilist currency policies of Asia, U.S. excess aggregate demand would be more than enough to keep the U.S. economic growth at satisfactiory levels. It would be much better if China reduced its currency interventions and took its fair share of the deficient global aggregate demand. The idea that the U.S. should continue to dig deeper into debt to support this deficiency abroad is just silly, and likely to lead to bigger problems than we face now if it is continued.

says...

Untenable position?

It is important to keep restating that this is not something that appeared out of the blue. This is a result of deliberate choices made by the Fed in the recent past. There is a mass of thieves who want to cover this racket up with propaganda, TV, opeds in newspapers, blogs, pundits, academic stooges and the financiers.

Dont let yourselves be convinced that all this just sort of happened, and we should side with the Fed in this difficult situation and cheer them when this is over. The glowing heroic portrayals of Ben, Geithener and so on taht appears in the NYT, WP etc as if they are heroic captains trying to navigate troubled seas is pure puffery.

These people are those who gutted the ship, sold of the rudder, got the crew drunk, and now are finding that they have a unruly crew, a rudderless ship, and smack in the middle of a storm.

No heroic captains, these bums.

Never forget that the Fed got us into this mess.

The whole economist-IB-banker-pigmen-corporate cabal who benefited from this racket want you to believe that this was all unexpected.

You are better off buying the Brooklyn bridge than believeing that.

[dd]

More this isn't good as the banking sector remains moribund and the Fed continues "wiggling" legal "obstacles:"

Fed May Give Private Equity
More Leeway to Help Banks
"We are looking at ways we can make those things more workable and gain from the experience we've had over the past few years," Federal Reserve general counsel Scott Alvarez said.
Fed officials recently have met with big buyout firms -- including J.C. Flowers & Co., Carlyle Group, Kohlberg Kravis Roberts & Co. and Warburg Pincus -- and banking lawyers to discuss the obstacles, according to people familiar with the matter.Under federal law, to own more than 24.9% of a bank, an entity must register as a bank holding company, which is subject to heavy regulation and can be forced to serve as a "source of strength" for the bank. Ownership of more than 9.9% of a bank also subjects the entity to regulatory scrutiny to ensure that it isn't controlling -- or even influencing -- the bank's operations.
The Fed can't change those laws, but it has wiggle room in how it interprets them."

"Cherry-picked" excerpt; but as always the link to the full piece is provided:
http://online.wsj.com/article_print/SB121450979069408179.html

[Creating a Mess]

"Never forget that the Fed got us into this mess."

The same as they got us into the mess with an easy money policy in the 1920s. Creating far too much money during boom times leads to disaster. There is far too much demand for subsidized credit for leveraged speculation during such periods, which leads to widespread default when the speculative ventures don't work out.

Its okay to let computer prices fall when engineers figure out how to put more transistors on a chip. You don't have to fuel leverage by hedge funds and flippers to compensate for better computer chips. That is a recipe for disaster.

says...

The Fed is in a pickle because they are following the current academic thinking which is completely bankrupt, including Paul Krugman.

[zinc]

Whoops, that was me above.

What they should have done is long past doing, so now we have a fine mess,

Ok. So reverse their emergency interest rate cuts tomorrow, over the weekend. Bring the rates back to 5.25%.

[zinc]

"In other words, the US has benefited by the foreign willingness to accumulate Dollar assets; "

WTF kind of bullshit is that. Total drivel. What a hack.

[cm]

esb: Empty shelf sections and supply "volatility" (deliberate understocking?) seem to be on the rise. Good thing we have "rain checks" here, but redeeming them is a challenge too -- I talked to some store manager and she acknowledged (effectively not literally) that during sales so many rain checks are issued that shelves are cleaned of merchandise for weeks on end, and she had to back-order or transfer stocks from other stores/warehouses because of the level of inquiries. Most stores will honor rain checks indefinitely (it seems), but not all (nominally; I have not yet had an "expired" rain check turned down).

[cm]

I forgot to mention, today I went to some store and checked a "particular item" that turned out to be "buy one get one free" with one piece left on the shelf. (I didn't take it, and I couldn't bring myself to asking somebody to check the warehouse -- probably an exercise in futility. Neither did I line up to get a rain check.)

[cm]

zinc: Why do you call that BS? How do you propose should a nation net-export to a trade partner without accumulating their currency (net export as they give them more than they get back)? (E.g. China to the US.) (And provided they cannot disburse of the currency quick enough.) The common wisdom is that (e.g. China) recycle their dollars by buying US debt instruments for dollars from the US.

[Blissex]

«did anyone explain that foreign citizens actually expect the US to repay those goods/services they let US citizens consume now?»

It is largely foreign *governments* that have financing the USA as a way to kickstart development in their countries with an export-led boom. They do not expect to be repaid by the USA, their payoff is in the greater development.

In other times they would have done so by subsidizing production and export prices, but that's now politically unfeasible, so instead of paying export subsidies, they lend the money to the buyers of those exports to buy them, knowing full well that's a subsidy, not really a loan.

The advantages of subsidizing buyers instead of directly exports are all political: not only that obfuscates the process, those buyers and the financial sector of the buying country become very strong political supporters of continued imports; even better, the government itself is bribed with high government bond prices which it may need to fund an expensive losing war and tax cuts with which to further bribe their constituency.

[Lafayette]

Just morphing

Fred: He (head of OPEC) cited the weakness of the greenback as a major cause of spiking oil prices.

He is very possibly right. Oil is negotiated in dollars and those dollars become oil-exporter country Sovereign Funds that are reinvested in Euros (so as not to lose value), or rubles or Renimbi or Yen. Any currency or currency basket that seems to maintain value stability.

So, when Soveriegn Funds invest more and more in other currency, to maintain their portfolio value, then the dollar tanks.

Still, let's be a bit realistic. For as much as I may rant about the American economy and its excesses, there is not one that matches its resilience and profitability for a foreign investor.

America will be back in the game. (Who knows when. If I did, I would be fool to say it here, wouldn't I?) Despite the fact that Europe will be the other major Economic Pole in the making of perhaps four, or five, globally; it does not have the intrinsic, structural diversity and buoyancy of the USA. This is due to its lack of industrial homogeneity (vertical industrial integration) of the same order as Uncle Sam, which delivers economies of scale that lower costs and enhance productivity.

The paradigm change currently enveloping America is accelerated because it is long overdue. It is difficult because Americans are no longer used to hardship. It is salutary because it will provoke the sort of ameliorative change that is necessary.

It is like going to the dentist with a bad tooth -- painful if you do, more painful if you don't. So, sit back and watch closely. The world as you've known it has not come to an end. It's just morphing into a New World Order, like the economic kaleidoscope that is its nature.

Lets ask ourselves therefore the question, Are we prepared for the New World Order? If we don't answer that question competently, others will answer it for us - for sure.

And, we wont like at all the answer imposed upon us.

[Repay]

"They do not expect to be repaid by the USA..."

Tell that to banks that can no longer sell their non guaranteed mortgage backed bond packages to foreign savers. (Home equity "extraction" to finance consumer purchases.) Tell that to sovereign wealth funds that are furiously diversifying into non dollar denominated debt holdings. Foreign savers, public or private, really do not like to be ripped off. Their current actions in shunning obvious rip offs show that they really thought they were storing value for future use, not giving stuff away for free.