OldVet rocks with another graphic on finance

Who’s gambling with our markets now?

In contrast to my own somewhat more gloomy views of our financial future, we have a different framing of the financial credit problem and the banking situation.

A new report by Stratfor’s George Friedman called ”China and the Arabian Peninsula as Market Stabilizers” takes a different slant on global finances and the US financial markets. In essence, he argues that the US has issued so many dollar debt instruments, and exporters have accepted so many of them over the years, that we are locked into our imbalances in trade.

He argues that with the dramatic rise in oil and commodity prices, and the implosion of the sub-prime mortgage market in the US, there should have been a collapse of financial markets before now. “The single most interesting thing about today’s global economy is what has not occurred.” Neither bond nor stock markets in the US have broken down, as would be expected under such stresses.

“This is not an act of charity. Dubai and the rest of the Arabian Peninsula, as well as China, are holding huge dollar reserves, and the last thing they want to do is sell those dollars in sufficient quantity to drive the dollar’s price even lower. Nor do they want to see a financial crisis in the U.S. markets. Both the Chinese and the Arabs have far too much to lose to want such an outcome. So, in an infinite number of open market transactions, as well as occasionally public investments, they are moving to support the U.S. markets, albeit for their own reasons.”

Mr. Friedman doesn’t see any other explanation for the relative stability of our financial markets till now, nor any likely moves being made to change that situation.

My thought is this: What if a worldwide credit freeze based on insolvency of individuals and institutions forces change anyway? What if the solution doesn’t involve the willing participation of the US, China, and the GCC?


This one by OldVet