Time to panic again! Or, on second thought ...

[...] Dubai World defaults.   Volatility returns.  (WSJ, Calculated Risk, Aleph Blog, Barron’s, The Reformed Broker, VIX and More, The Money Game, Felix Salmon, Curious Capitalist) [...]

Pull out from Oil Market Assets. Consolidate all assets. Build another historical financial pole. Remove dependence from gasoline , petroleum, oil. The historical shift in energy consumption and habits go from oil to 100% electricity on the planet.
The sole and only result is 90% percent less war or at least important war assets in the middle-east. The less economic nerve, hostage , less human hostages.

[...] Dubai World defaults.   Volatility returns.  (WSJ, Calculated Risk, Aleph Blog, Barron’s, The Reformed Broker, VIX and More, The Money Game, Felix Salmon, Curious Capitalist) [...]

Guess they should have held on that cash and invested in the global economy and hard assets instead of recycling those petrodollars into their rentier economy. Oh Walt Wriston knows a thing or two bout insolvent bankruptcies of countries. Except this alternate Walt know can and do go insolvent national assets can only cover so much in the “economy that's fake anyway” – Bill Hicks

It is impossible for a sovereign nation to run out of its own currency -- unless that currency is tied to a limited-availability asset.

In the bad old days, that limited-availability asset was gold. Gold standards were based on the peculiar philosophy that the world's money supply should be limited to the amount of one metal that can be discovered and mined.

Today, the Dubai Dirham is pegged to the US Dollar, which limits their ability to create more Dirhams.

The leading nations cannot run out of their own money; they have the unlimited ability to create it. So we cannot see "the end of the ability of governments to use deficit spending to fight the slump."

Even wondering about this fundamental truth demonstrates how far from reality economists have strayed.

Rodger Malcolm Mitchell

I am hoping you are right, healthy skepticism about things like Dubai world, but not panic.

Some of the guys on seeking Alpha were freaking out, and of course CNBC was acting like the weather channel in a storm. As I have said before, the weather channel loves all the attention they can get when their is a big storm, and CNBC loves all the attention they get during a financial crisis. The difference is that the weather channel cannot make the storm worse, but CNBC can create panic, and make a financial crisis worse.

It is only a crisis if the herd says it is a crisis, and stampedes.

Here's a link by the St. Louis Fed on questioning if the US is insolvent.

http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf

The St. Louis Fed article is hilarious. The author, Laurence J. Kotlikoff, missed the forest because he became enamored with the "trees," in this case his mass of meaningless equations.

"Insolvent" means unable to pay debts as they come due. Because the U.S. government has the unlimited ability to create money, it never can run short of money to pay its debts. Even were the U.S. to end all taxation, and double its spending, it still would have no difficulty paying its debts.

Further, the U.S. could end all indebtedness, tomorrow. The government creates debts by borrowing. We borrow by creating unlimited amounts of T-securities out of thin air, then selling them. T-securities are backed only by full faith and credit.

The government, just as easily and prudently, could create money out of thin air, also backed by full faith and credit, and skip the T-security step, which is a relic of the gold standard days. Then writers like Mr. Kotlikoff would have nothing to fret about.

It truly is sad when bankers who should know better, equate personal, city, state and corporate debt with federal debt. Federal debt is an entirely different beast, having no relationship to other kinds of debt, except for the misleading word "debt."

But then again, he is a banker.

Rodger Malcolm Mitchell
http://rodgermmitchell.wordpress.com

By the way, here is the fundamental flaw in Kotlikoff's thinking. He said, ". . . the proper way to consider a country's solvency is to examine the lifetime fiscal burdens facing current and future generations. If these burdens exceed the resources of those generations, get close to doing so, or simply get so high as to preclude their full collection, the country's policy will be unsustainable and can constitute or lead to national bankruptcy."

Current and future generations do not pay for federal debt. In truth, the government does not need tax money, and taxes do not pay for any federal spending, much less deficit spending. But for simplicity, consider this example:

In 2009, taxes will be less than spending by about $1 trillion (depending on who's counting). How much tax money covers previous deficits? Answer: None. If taxes don't even cover this year's spending, how can they cover previous deficits?

We are the "future generations" of the massive Reagan deficits, and we never have paid for them, and never will. Taxes don't pay for federal debt.

Rodger Malcolm Mitchell

Walt, I'm sure you're correct. However, since taxes do not pay for deficits, future taxes do not pay for past deficits, so there is no intergenerational transfer.

Further, there are no federal "unfunded liabilities." All of the federal government's liabilities are fully funded by the government's unlimited ability to create money. By definition, an unfunded liability can't be paid, but the government has unlimited ability to pay.

That term often wrongly is used to describe Social Security. The government fully can fund Social Security without FICA. Tax dollars do not go into a Social Security fund; there is no Social Security fund.

If fact, tax dollars don't go into any fund. The federal government has no stash of money. It pays its bills by creating credits in bank accounts, ad hoc. The government could give you $1 trillion tomorrow, simply by crediting your bank account and debiting a balance sheet account.

There is no physical money. It's all electronic data. When you pay taxes, the government merely debits your account and credits a balance sheet. This makes you poorer, but does not enrich the government in any way.

Even many so-called experts don't understand the difference between private debt and federal debt (which rightly should be called "money created," not debt.)

Rodger Malcolm Mitchell

Geez your constant rant of how money is created ex-nihilo for the government it finance itself is nothing new econ 101 if you ask me, but what of the greater threats from doing so say hyperinflation? And if anyone thinks there's a SS "trust fund" is sadly insane.

No slight intended but this is a reoccuring theme in a lot of your recent postings.

here's link you may like it says a lot of what you say but has some points in it.

http://henryckliu.com/page118.html

When the global economy continues to be in the state of fragility and jittery, anything goes. A flap of butterfly wings from any corner could well trigger yet another onslaught of scary magnitude.

The Dubai panic did cause the stock markets to react negatively immediately, but that seems to calm down equally fast. Or is it?

Why not just keep living a simple life, with humility and frugality?