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Historians will look back at this period and have difficulty comprehending how a nation could have so indecorously squandered the benefit and privilege associated with reigning over the world’s reserve unit of exchange. Especially when it comes to energy resources, dollar devaluation has had momentous real consequences. Our vulnerabilities have been further exposed, while the standing of our competitors has been enhanced and our enemies empowered. Worse yet, the leading beneficiary of U.S. inflationism has been, not coincidently, the most unstable tinderbox region of the world. It is precisely these types of momentous inflation and economic consequences that manifest into financial and economic upheaval and calamitous global conflicts.

It was a short but eventful week. The Credit disaster unfolding at the GSEs came into clearer focus with the release of earnings from Freddie Mac. Agency debt and MBS spreads widened markedly. The mortgage implosion was at the brink of a major turn for the worst, with liquidity concerns spurring significantly wider Credit default swap prices for Rescap, GMAC, Countrywide, the Credit insurers, and financial institutions generally. The dominoes are lined up. Yet it is this type of acute stress that has always in the past extorted aggressive policymaker action. The Fed’s traditional tool box, however, is woefully deficient to deal with impending Credit Collapse. I can only assume they’re now diligently at work crafting new implements.

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