The coming denouement. II. Economic factors.

It began with the imposition of "mark to market." This forced the banks to value their mortgage portfolios as worth zero in many cases. The move stopped money flow, sent the economy into a free fall and destabilized the real estate market. Faced with mortgages that were more than the houses were worth, many property owners just walked away, leaving the property to deteriorate. Thus, once "mark to market" is imposed, it initiated a self-sustaining deflation.

The Obama regime promised to "cure" the problem by flooding the economy with money. There was a serious monetary inflation, but price inflation was kept in check by the lack of demand to buy and take loans. This is the first leg of the Denouement.

The second leg of the Denouement was a consequence of the first leg: the recession caused by "mark to market" bankrupted many states and cities. Some of these are raising taxes (further depressing their economy), while others are cutting spending.

The third leg of the denouement is the unraveling of European debt servicing. Several States of Europe are unable to service their debts and have difficulty of raising money in the markets. The reason for this is that their credit worthiness is being questioned, so they have to pay higher interest rates. The EU has established a fund to buy the suspect bonds of Greece and Ireland, but now Portugal and Spain are coming under stress. The US has been pouring money into the EU rescue and now Chine has moved in as well.

All this is like a house of cards sustained by the use of the US Dollar as a world currency for settlement. That means that if the US Dollar slips, the house of cards will come down.

How can the US Dollar slip? There are several factors that can make the Dollar slip. First is the reduction of the credit rating of the US. This does not sound very threatening, but it is. It would mean that the US would have to pay higher interest rates to sell Treasuries. This would automatically increase the deficit. The second way to undermine the Dollar is through inflation (Price inflation).

The Obama regime tries to counter by devaluing the dollar, as Roosevelt did during the Depression. This would be done by having China agree to increase the value of its yuan.