Fire and Ice

Poet Laureate Robert Frost is among the best known American poets. Although he died in 1963, he is the poet of this financial crisis. His Roaring Twenties poem “Fire and Ice” is about how the world may end and also captures the two scenarios of consequences of the crisis.* Fire is inflation. Ice is deflation.

Moral Hazard and the End Game

Over the past year, as the financial crisis evolved, US officials have generally pursued a reactionary, ad-hoc approach. For more than half a year, some observers have been advocating some kind of comprehensive approach. It has taken a serious attack on the very foundation of the US financial system to get many officials to overcome their ideological resistance. The failure of Lehman, the forced marriage of Bank America and Merrill and other tie-ups between investment and commercial banks appears in the works, the nationalization of AIG, and the breaking of the sacrosanct $1 share value of some large and prestigious money markets and paralysis of the money markets has created a sense of urgency that has not existed before. This very well may mark the beginning of the end of the crisis.

CNBC: Financial Crisis Task Force

The Dollar Road Map

The first leg of the dollar’s recovery appears to be ending. The dramatic trend of the past several weeks is likely to morph into more of a range trading affair, even if it takes time for such a range to become clear. We can anticipate a stream of fundamental news that will also temper some of the recent enthusiasm for the greenback.

Foreign Policy Association: Global Economic Outlook Panel

"The Foreign Policy Association hosted a panel discussion on the current state and outlook of financial markets as Congress considers policy options for stabilizing the system. The second morning session focused on U.S. and global economic outlooks. Topics included the evolution of the current U.S. and global economic climates and economic advice for the incoming President. Panel members responded to questions from the audience. Theodore Roosevelt, IV moderated." Watch the video here.

Is the Dollar Really King?

The US dollar recovery over the past several weeks has been simply breath-taking. Consider for example that it took the euro the better part of six months to move from around $1.44 to its record high of almost $1.6050. It took a little more than six weeks to retrace that gain and then some. The violence and persistence of the dollar’s advance since the middle of July has been of historic proportions and reflects a powerful pent-up demand for the greenback.