"The financial position is almost irretrievable: the country has lost its way. In the worst of the war I could always see how to do it. Today's problems are elusive and intangible, and it would be a bold man who could look forward to certain success."
 - Winston Churchill, upon his appointment as Prime Minister in 1951

Yes, although Churchill was referring specifically to England's problems at the time, there's an air of familiarity about them today. Substitute "the Western world" or even "the whole world" for "the country" that "has lost its way" and Mr. Churchill's words would be equally applicable to the events of today. The strains which developed were neither foreseen nor particularly illuminated by any school of economic thought. Above all there was a lack of both the political and the economic leadership to find a constructive compromise-which would not have been just splitting the difference-between sheer immobilism and a return to the inflationary finance of the 1960s and early 1970s.

Indeed. But I didn't write that. Samual Brittan, author of "Capitalism and the Permissive Society, How to End the Monetarist Controversy," wrote it. In 1982.


4. So, What's the Future of the Dollar?

The conventional wisdom is that the dollar-based fiat monetary system is the final financial bubble doomed to inevitable collapse. Surely, the reasons for that view seem both logical and self-evident - that the U.S. is simply the world's largest source of consumption, debt and an seemingly endless supply of paper money that is only worth anything to the extent that vast numbers of people believe others will continue to exchange valuable things for it. It's the ultimate confidence game.

Which is true, but beside the point. The point is, what happens after this "inevitability" of dollar collapse arrives? That is where things begin to get shady.

One camp willingly shrugs its shoulders at this and insists it is enough to simply own gold and see where the chips, literally, fall. They may be right,  but the mechanics of dismantling a global fiat-currency system are messy.

Emerging private-money alternatives, many of which are based on gold, will go head-to-head with central banks around the world, probably provoking states, one-by-one, to criminalize them. Remember, we said this is going to get messy; after all, you don't give up a century of currency control without a fight.

Naturally, those are the dark visions for where we are headed. Viewed through that lens, it is difficult to see how a dollar alternative comes into being without a long, vicious struggle. But, for better or worse, I do not see things as black-and-white; that is, there is either a dollar fiat-based currency system, or a new gold standard; there is either the U.S. hegemony, or there is a global revulsion to it resulting in hyperinflation (see 1-3 above).

There are clear alternatives to a systemic monetary system collapse, mostly revolving around a new statutory framework for the Federal Reserve, which Benn Steil, Senior Fellow and Director of International Economics at the Council on Foreign Relations, has outlined in this recent paper.

I admire the idealism of those pushing for a "sound money system," and the steadfast adherence to gold as the replacement of choice for the fiat monetary system. But at the end of the day, in my mind at least, reality intrudes and tells me that dollars are not ready to evaporate, at least not yet.


5. News & Weirdness

Bernanke Prepares to Defend Record as Debate Over His Reappointment Begins  - Bloomberg
Bernanke will be on a short leash as his term nears expiration in the final half of the year. What would you do to impress your boss?

Home Resales Up From Previous Month... as Prices Fall - WSJ
"The median price for an existing home last month was $173,000, down 16.8% from $207,900 in May 2008."

Insiders Exit Shares at the Fastest Pace in Two Years - Bloomberg
"Executives at U.S. companies are taking advantage of the biggest stock-market rally in 71 years to sell their shares at the fastest pace since credit markets started to seize up two years ago."

Tightening Credit Puts a Squeeze on Business Owners - LA Times
""Every time I open an envelope, there is a Chase (JPM) or Advanta (ADVBN) or somebody either saying your credit line is cut or interest rate is going up," said Kirby Newbury, co-owner of DiscountCoffee.com."

Wary of a Teed-Off Public, CEOs Don't Want to Be Seen Playing Golf - USA Today
"Many CEOs have been shamed into playing less golf, or at least humiliated enough by their tanking public image to play their rounds on the sly."