Monday, Monday...

Bear Stearns has just been marked to market — 7 cents on the dollar, give or take.  Is the U.S. Empire next?

Unfortunately, the only way we could find out what Bear was actually worth was for Empire itself to assume the accompanying risk:

Acting quickly to prevent a run on major global financial firms, the
Federal Reserve cut its discount rate by a quarter percentage point to
3.25% and offered to lend money to a longer list of firms than ever
before. The extraordinary weekend moves came as J.P. Morgan Chase for
just $2 a share backed by funds borrowed from the Fed. The Fed board
gave its approval to that unique funding arrangement, which guarantees
JP Morgan against losses from buying Bear.
Really now?  And if JP Morgan does indeed incur losses, who pray tell will take the hit instead?  Oh, that's right — you and me, in the form of ever-depreciating dollars.
Except that Hank Paulson says I'm full of it.  He insists there's no moral hazard issue here, and the U.S. government still believes in a strong dollar.  He says it over and over, so it must be true.  Gee, I feel better already.  In fact, I feel so good, I'm just going to ignore the latest dispatch from across the pond by Ambrose Evans-Pritchard: 
As feared, foreign bond holders have begun to exercise a collective
vote of no confidence in the devaluation policies of the US government.
The Federal Reserve faces a potential veto of its rescue measures.

Asian, Mid East and European investors stood aside at
last week's auction of 10-year US Treasury notes. "It was a disaster,"
said Ray Attrill from 4castweb. "We may be close to the point where the
uglier consequences of benign neglect towards the currency are

The share of foreign buyers ("indirect
bidders") plummeted to 5.8pc, from an average 25pc over the last eight
weeks. On the Richter Scale of unfolding dramas, this matches the death
of Bear Stearns.

OK, let's put aside the snark and let this sink in for a moment: The "disaster" Treasury auction last week came before the "significant deterioration" in Bear's liquidity situation late Thursday and into Friday.  It came before the Fed's bailout of Bear, to say nothing of its agreement to assume all of J.P. Morgan's risk in the ensuing takeover.  It came before whatever rescue might be in the works for Lehman.  And it came before whatever cut in the Fed funds rate comes tomorrow.

We're witnessing — although establishment media is too busy chasing down the most immediate developments to notice — a shift in power around the world.  Harvard's Ken Rogoff — no Austrian economist he, in fact he's about as establishment a figure as you can get — saw it coming over four years ago as Greenspan's last reckless act of false prosperity began to work its inevitable effects:

it still a bit nutty that the world's richest country has become by far
the world's biggest borrower, with a net debt to the rest of the world
(assets minus liabilities) of more than $2 trillion? The Romans would
be jealous: They went to a lot of trouble to extract taxes from their
empire; the world just gives money to the United States…

Okay, I admit that just now our spending culture suits the exigencies
of the moment and is helping support a long-awaited economic recovery.
Indeed, the rest of the world is cheering us on as we spend each
fistful of dollars… Talk to American officials about it and
they'll say not to worry, this country can always handle a little more
international debt. Sure, the same way an alcoholic can always handle
another drink.

The numbers tell a different story. They strongly suggest that someday,
all this borrowing has to dramatically slow down if not unwind. Even a
slowdown in the rate of borrowing could be enough to push the dollar
off a cliff, and all of sudden, those happy voices in the rest of world
are not going to be cheering us on anymore.

The cheering has now stopped.