Why is the dollar strengthening with the huge bailouts that Bernanke and Paulson, both stunned rabbits in this credit tsunami, have fought so hard for? The answer lies in the flight to safety of US treasuries as emerging economies, until recently thought to be safe from the credit crunch, feel the effects the growing storm.

A stampede into dollars has lifted the world’s reserve currency to a two-year high versus the euro and a five-year high on the pound. The dollar is up some 18 percent since July on a trade-weighted basis against a basket of currencies.

But….and this is a big but…there is some unwelcomed side effect to the strength of the USD. The first is that the earnings season we are in is expected to bring about a whole raft of companies reporting that the currency is hurting exports which will be reflected in 4^th quarter results. This is likely to trigger a chain reaction of analyst’s downgrades and send stock markets down even further as investors are trapped in yet another wave of forced liquidation.

Not only that, but the USD should be a virtual basket case right now as the US teeters on the brink of actual bankruptcy…a direction first highlighted by the Comptroller of Currencies at the IMF in 2003 when he openly said that the US should be bankrupted by its huge twin deficits within 10 years…deficits that have deteriorated markedly since then.

So when all the safe haven money flows out of the USD like an unstoppable tide once people understand that the USD, as is, is unsustainable in the long term, the collapse could be nothing short of earth shattering. Make no mistake, the dollar strength is short lived and will reverse, probably violently…but many currencies will topple before then as the flow of capital knocks over currencies like dominoes, before landing back on Asian shores. Once that happens, it will signal the biggest economic boom ever seen in the region…and we will all bow before our new masters.

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Tags: Bernanke and Paulson, Comptroller, Currencies, Dollars, IMF, Liquidation, Stock Markets, USD

“He saved every one of us!”…or did he?

Nothing like a good old fashioned war or a crisis to shore up the public’s perception of an unpopular leader. It works every time. The one thing I’m surprised about is that Flash Gordon hasn’t evoked memories of the blitz and a “we’re in this together” message. Except, we’re not all in this together, are we? MPs, even if they lose their jobs, have the best pension plan in the UK bar none, they have lecture tours, board seats and lucrative after dinner engagements. The same boat?…it isn’t even the same ocean!

Tony Blair has just bought a near £6m pile in the country. I’d like to know where an ex PM earning about £200k a year gets the cash to do that? It’s 30 times his income and he’s too old to get most traditional mortgages. If his wife is earning about £500k a year, it’s still 8 times their joint incomes.

No doubt Gordon Brown will get the same type of country pile once he departs Downing Street and hits the lecture circuit for a while…which he no doubt will. He has been hailed as the global architect of the financial system rescue plan and has in the process made Bernanke and Paulson look like a pair of clowns…with big shoes and big mouths that fit each other beautifully. What good the bailout plan does remains to be seen…but there are plenty in the city who think this type of intervention does far more harm than good.

But make no mistake, the PM and the MPs will be sitting pretty after all this is over. Sure, some of their investments are suffering in the same way ours are, but they have implicit tax payer guarantees on their pensions at a time when everyone else is looking at their private pension pot with incredulity.

Flash Gordon….more like Harry Enfield’s character from the last boom….loadsmoney!

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Tags: Bernanke and Paulson, Global Credit Crisis, Gordon Brown, Tax, Tax Payer, Tony Blair