US Federal Reserve chairman Ben Bernanke

There is a certain sense of deja vu watching US Federal Reserve chairman Ben Bernanke pump more liquidity into the US market to try and keep it afloat.In his damning book, Greenspan's Bubbles, William Fleckenstein accuses his predecessor of blowing two asset bubbles. He says that the subprime mortgage crisis is Greenspan's legacy."Greenspan bailed out the world's largest equity bubble with the world's largest real estate bubble. That combination easily equates to the biggest orgy of speculation and debt creation in the United States (and the world) has ever seen. Unfortunately, Greenspan's legacy will not just be those two bubbles, their attendant busts, and the trillions of dollars of debt left in their wake. Operation Enduring Bubble - what I call Greenspan's monetary and interest rate decisions that created the real estate bubble also exacted a heavy toll on the dollar.''Greenspan, according to Fleckenstein, routinely suppressed the forces of creative destruction that come with every market. By slashing interest rates and keeping them low for too long, and by pumping in money, he ensured there was a loss of fear which meant that the normal risk reduction response that most business people have to periodic pain never occurred. It left the US swimming in an ocean of debt that has been ratcheting higher.According to Fleckenstein, Greenspan couldn't see the tech bubble because he was mesmerized by the facade of a technology-driven productivity boom, resulting in a continual cheerleading that encouraged others to make wrong-headed economic and investment decisions.

liquidity into the U.S. economy

Williams reports M3 is currently growing at close to a 9.6 percent rate and trending higher, compared with an 8 percent rate early this year, when the Fed quit reporting the measure.
"The Fed is pumping liquidity into the U.S. economy," Williams told WND, "and the Fed evidently did not want the markets to follow too closely what the Fed was doing with the money supply."
China today now is holding a historically unprecedented $1 trillion in foreign exchange reserves. During the Thanksgiving holiday, an announcement by China that their central bank planned to diversify foreign-exchange holding away from the dollar caused the dollar to drop in value on international currency markets. Since then, the dollar has hit a 20-month low against the euro.
"This was almost an orchestrated announcement," Williams claimed. "Around Thanksgiving the markets were thinly traded. I'm not sure who was playing games there, but the signal was clearly heard."
"You're dealing with mass psychology here," Williams argued. "The central bankers around the world know they are going to take a hit on their dollar holdings. None of the central bankers want to start a dollar panic, but none of the central bankers want to be the last out of the dollar, either."

policymakers who want to reduce creditors' expectations

While safety net expansion has increased TBTF concerns, the essence of the problem and underlying cause of TBTF remain clear: Policymakers support large-bank creditors to contain or eliminate spillover effects, but the support creates an incentive for too much risk-taking in the future. Our approach is straightforward. If spillovers lead to government support, then policymakers who want to reduce creditors' expectations of such support should enact reforms that make spillovers less threatening. Reforms that fail to address this fundamental issue will not change policymaker behavior and will not convince creditors that they face real risk of loss.
So what should policymakers do to address concerns over spillovers? The Federal Reserve Bank of Minneapolis recommends an approach labeled systemic focused supervision (SFS), which focuses supervision and regulation efforts on spillover reduction, and which consists of three pillars:

U.S. dollar facing imminent collapse?

Even as the stock market is hitting new record highs almost every day, the Federal Reserve and Treasury Department are quietly coordinating a devaluation of the dollar that the Bush administration hopes will be a slow decline rather than a dollar collapse.
This week, in an unusual move, the Bush administration is sending virtually the entire economic "A-team" to visit China for a "strategic economic dialogue" in Beijing Dec. 14 and 15.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke are leading the delegation, along with five other cabinet-level officials, including Secretary of Commerce Carlos Gutierrez. Also in the delegation will be Labor Secretary Elaine Chao, Health and Human Services Secretary Mike Leavitt, Energy Secretary Sam Bodman, and U.S. Trade Representative Susan Schwab.

Canadian Dollar vs. 6 Currencies

Canadian Dollar vs. 6 Currencies
Against U.S. Dollar: Up 11.88%
Against Euro: Up 5.52%
Against British Pound: Up 8.80%
Against Japanese Yen: Up 7.79%
Against South Korean Won: Up 7.75%
Against Mexican Peso:

Up 12.86% The Canadian Dollar is up over 5% in value over each of these major currencies; that’s a pretty rapid ascent in the last few months. Again, note that other than the Mexican Peso, the Canadian Dollar has gained more from the U.S. Dollar than it has from any other currency. From the statistics gathered in this article, it’s clear that the huge jump in the Canadian Dollar relative to the American Dollar over the last six months is due to both the Canadian Dollar appreciating on world foreign exchange markets and the U.S. Dollar falling in value.

Canadian-American exchange rate

The idea behind it is simple: If we see that the Canadian Dollar hasn’t moved much against the Euro, but the American Dollar has dropped significantly, we’ll know that the changes in the Canadian-American exchange rate are mostly caused by a devalued U.S. Dollar. Conversely, if we find the U.S. Dollar has held steady against the Euro while the Canadian Dollar has risen in value, we’ll know that changes in the Canadian-American exchange rate were largely caused by an appreciating Canadian Dollar.
We’ll compare both currencies against each other and five other major world currencies: the Euro, the British Pound, the Japanese Yen, the South Korean Won, and the Mexican Peso. We’ll consider how the exchange rate has changed between two dates: May 1, 2004 and October 27, 2004.

First up, the U.S. Dollar.
U.S. Dollar vs. 6 Currencies
Against Canadian Dollar: Down 10.58%
Against Euro: Down 5.69%
Against British Pound: Down 2.74%
Against Japanese Yen: Down 3.66%
Against South Korean Won: Down 6.21%
Against Mexican Peso:

Up 0.88% From these statistics we see that the U.S. Dollar has fallen in value against 5 of the 6 other currencies and has only risen slightly against the Mexican Peso. However, the American Dollar has fallen the most against the Canadian Dollar. If you’ve aware of the link between exchange rates and arbitrage you’ll know that this should mean the Canadian Dollar will have risen against the other currencies. The statistics bear that out:

Is the Canadian Dollar Going Up in Value, or Is the U.S. Dollar Going Down?

How To Tell if the U.S. Dollar is Going Down or the Canadian Dollar Is Going UpThe easiest and also the most revealing way to examine this question is by throwing other currencies into the mix. If we see how the Canadian and American Dollars have done against other major currencies such as the Japanese Yen and Euro, we can see if the Canadian-American exchange rate has changed because the Canadian Dollar has become more valuable of the American Dollar has become less valuable.
The idea behind it is simple: If we see that the Canadian Dollar hasn’t moved much against the Euro, but the American Dollar has dropped significantly, we’ll know that the changes in the Canadian-American exchange rate are mostly caused by a devalued U.S. Dollar. Conversely, if we find the U.S. Dollar has held steady against the Euro while the Canadian Dollar has risen in value, we’ll know that changes in the Canadian-American exchange rate were largely caused by an appreciating Canadian Dollar.