Rather than directly inflate the currency that we were all tracking, we inflated these hidden financial instruments, and took advantage of the inherent lowering of prices for many goods thanks to newly industrialing nations (China) coming on line to hide this inflation.
We are now in a very volatile period, in which the money masters are trying to combat the enormous deflationary forces of this collapsing junk with an awe inspiring, but so far not yet adequate, increase in U.S.Treasuries.
We don't need to expand Treasuries one-for-one to match the collapsing CDS's -- thank heavens. That would mean somewhere between $50 and $100 Trillion, which is too big a number even for Paulson to dare ask for.
But we would need Treasuries of stable value in quantities of a few Trillion dollars, increasing our national debt from, very rough estimate, $10 Trillion to $15 Trillion. Holding the value of Treasuries anywhere close to par value, when this many new ones are printed, will be difficult. I am making my investments assuming a strong rise in U.S.Treasury interest rates over the next few years, as we saw in the inflationary periods of the 1970's.
If all the major counter parties (the other big nations which hold these Treasuries) decide to play nice, perhaps out of fear, then this might actually be sufficient to avoid collapse of the worlds reserve currency - our dollar.
Essentially the risk of systemic failure of the big banks has been elevated to the risk of systemic failure of the big nations.
In my personal behaviour, I am acting as if the odds favor this triage of the current monetary crisis happening successfully, after one to a few more years of pain and a recession, perhaps quite deep. But such a "successful" outcome is by no means certain. It could get a lot worse.
If, or when, the current international monetary scheme breaks down, it will likely devolve into a major war.
My top bet is that there will be one more big bubble first, in energy (oil, gas, coal, nuclear, solar, wind, geothermal, magic pixie dust, ...)
