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Confidence in the dollar is faltering in the face of untenable $800bn annual Current Account Deficits. The Credit system is weakened by unprecedented impending subprime losses and acute vulnerability throughout "prime" mortgages. The GSEs are weak financially and extraordinarily vulnerable. The Credit insurers are highly exposed to myriad Credit and financial risks. The Wall Street firms and "money center banks" are heavily exposed to mortgage and capital market risk. The untested Credit derivative marketplace has been shaken by the rapidity and severity of the subprime implosion. The CDO market wasn’t a factor in 1998, let alone a vital facet of system Credit creation and risk intermediation.

What appeared at the time (1998) a large leveraged speculating community seems today tiny by comparision. Today's vast global pool of speculative finance was but a little puddle, and a dollar bullish one at that. Meanwhile, the expansive marketplace for trading Credit exposures has created a major venue for placing aggressive bets on systemic Credit conditions – over-stimulating liquidity creation when the bets are bullish only to imperil liquidity when the bulls turn, as they are these days, into enterprising bears. Moreover, the coveted risk modeling and management systems are oblivious to end-of-cycle Credit Bubble dynamics.

The most important difference between today and 1998 is that the Credit system back then was not a full decade into problematic Credit and Economic Bubble dynamics. The amount of Credit necessary to support the economy and markets was a fraction of what it has become. Both the quantity and quality of risk to be intermediated was relatively small in comparison and, besides, there was a bevy of risk intermediators easily up to the task.

In stark contrast, today – and going forward – there will be an unrelenting torrent of risk that must be intermediated (risky Credits transformed into palatable debt instruments), and it is not at all clear who is in a position to absorb significant risk. The leveraged speculators are more than likely keen to shed risk. The big "banks" and "brokers" are already fully-loaded. And the general marketplace, well, it’s reeling with the realization that much of structured finance today suffers from pricing and liquidity issues and, worse yet, not even debt ratings can be trusted. "Ponzi Finance" dynamics are in full play and the U.S. Bubble economy is incredibly exposed to a reversal in speculative finance and resulting liquidity crisis. These are very serious issues and indicative of the types of unavoidable risk intermediation problems that will stymie this historic Credit Bubble.

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