Sublime

Sir Jon Cunliffe, the widely respected deputy governor of the Bank of England, once commented to me that, every several generations, society re-asks the question: “What is money?” He thinks this latest Internet wave is prompting society to ask that question once again.

Yet Bernanke’s analysis ignores the fact that the riskiest subprime loans were priced off short-term rates, including the option of adjustable-rate mortgages with their negative amortization feature (in which interest was rolled up with the principal).

Today’s fiat currencies emphatically meet the above bubble criteria. The prices of government bonds denominated in euro, yen and dollars have risen to extraordinary levels (which is the same as saying interest rates have been forced to extraordinarily-low levels). And befitting its size and scope, this bubble is rationalized with two popular mantra

The U.S. housing and banking system was the epicenter of the global financial crisis in 2008, and the Fed used a few rounds of quantitative easing (i.e. expanding the monetary base to buy U.S. government debt and other securities) in the aftermath, which kept its currency relatively weak due to plentiful supply.

When the United States finished its t

In December 2010,

The world’s financial system is predicated on the U.S. government being definitionally zero credit risk when denominated in dollars. Every other kind of debt in the world is defined in reference to a Treasury.