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The ongoing bust in Wall Street-backed finance will undoubtedly be a major Issue for 2008. No amount of Fed rate cutting can reverse this spectacular debt collapse. The fallacies of so many aspects of "contemporary finance" have been exposed. Going forward, the viability of many firms involved in Wall Street Risk Intermediation will be in doubt. The financial guarantors are in serious trouble. The Credit default marketplace will attempt to forestall implosion. Problems that will beset the colossal leveraged speculating community have only begun to emerge.

What impact Fed "reflationary" policies have on the ballooning Bubbles in the "money-like" Credit sectors is a less obvious but Major Issue 2008. With Wall Street Risk Intermediation now virtually out of the equation, the ballooning Bank, GSE, and money fund complexes are left in a perilous position as the prominent risk intermediators (of last resort) for a U.S. Bubble economy at the precipice. Delaying the inevitable (arduous) financial and economic adjustment period through aggressive Greenspan-style cuts only exacerbates the unmanageable risks accumulating in institutions issuing enormous quantities of perceived safe and liquid liabilities ("money-like" debt instruments). The difference between a deep recession and a devastating depression hinges – as it has historically – on maintaining market faith and confidence in "money." A serious Issue 2008 has the perceived soundness of "money" today in the most serious jeopardy in almost 80 years.

It will be another year of fascinating tests for Macro Credit Theory and Analysis. Is it possible for our Bubble Economy to persevere through 2008 without ever increasing quantities of system Credit growth? Assuming such massive Credit creation is in the offing (a major assumption today), how does the Credit system pull off such a feat and what will be the consequences? Well, it would certainly necessitate ongoing Bubbles in "money" market instruments, including Treasuries, "repos," and agencies. It would also require a massive issuance of agency MBS, along with another year of double-digit (Trillion plus!) bank Credit expansion. And we must also hope that our foreign Creditors will not completely back away from our risk markets.

Today, ongoing Credit excess, Current Account Deficits and financial outflows inundate the world with dollar balances - that are then recycled back to a limited supply of perceived safe Treasuries and (to a somewhat lesser extent) agencies. This resulting Bubble has severely distorted the fixed income marketplace, creating one more facet to the unfolding financial crisis and dislocation. The first three trading sessions saw stocks in virtual freefall, Treasuries in melt-up mode, the yen rallying strongly, and many spreads widening meaningfully.

2008 has commenced with some key hallmarks of impending financial dislocation – not a huge surprise since we’ve for some time now been in the midst of an unfolding financial crisis. The stock market is in some serious trouble, and the U.S. Bubble Economy is in serious jeopardy. Myriad global Bubbles are accidents waiting to happen. Worse yet, we’re now officially in what will be a decisively unbullish political campaign season. There’s also increased talk of Wall Street investigations – of which there will be plenty. Disconcertingly, the public mood is turning increasingly sour at home and the geopolitical backdrop more problematic abroad. Get ready for one of the consequence of bursting Bubbles – a public less trusting in "Capitalism," a world increasingly lured to "protectionism," and a federal government much more intrusive in our financial lives.

As for Issues 2008, there are obviously many and they are unusually varied – a wide spectrum of financial, economic, political, environmental and geopolitical risks. I really fear a major California bust has commenced. But what worries me most at the present is the possibility of a "run" on the leveraged speculating community, a circumstance that could potentially precipitate a "seizing up" of even the more "money-like" debt markets at home and abroad. I foresee chaotic markets. As always, I can only hope my fears prove unfounded.

Doug Noland is a market strategist at Prudent Bear Funds. Their website is www.prudentbear.com.