Head of the Fed Bernake testified before Congress this week, and our weak dollar........ along with inflation, and a quickly dropping housing market could lead to worldwide economic disaster. He said the housing crisis would worsen in the coming months, as millions of homeowners with adjustable rate mortgages faced sharply higher interest payments when new rates kicked in, and hinted that the crisis on Wall Street could spiral into a full-blown recession.

"As the dollar hit record lows against the euro and other currencies, Chinese officials said the weakness of the US dollar could lead them to diversify their $1.43 trillion in foreign exchange reserves into stronger currencies, such as the euro. A Chinese central bank vice director told a conference that the dollar was “losing its status as the world currency.
The US economy, saddled with massive trade and current account deficits, depends on daily inflows of billions of dollars in capital from China, Japan and other countries for the functioning of its financial system. Any significant contraction of these capital flows would lead to a collapse in the dollar, massive interest rate increases, deep recession and the possibility of a US and global depression."

>"Oil futures, up more than 65 percent in the past year, topped $98 a barrel for the first time. Gasoline prices in the US—already significantly higher than last month—are now expected to follow the surge in oil, and Americans’ winter heating bills are expected to rise even more sharply than initially feared."

Chairman of the Joint Economic Committee, speaking for Wall Street interests, said “contrary to what you said at the time, the subprime mess has not been ‘contained,’ but instead has proved to be a contagion that has spread in dangerous ways throughout not just the housing market, but our economy and the global financial system. However, while we did weather that summer storm, I’m very concerned that there may be a bigger storm on the horizon. Quite frankly, I think we are at a moment of economic crisis stemming from four key areas: falling housing prices, lack of confidence in credit-worthiness, the weak dollar and high oil prices. Each of these problems alone would be enough of a threat to our economic well-being. But taken together, they are essentially the four horsemen of economic crisis...

“In particular, as I watch bank after bank write down bad investments tied to baroque financial instruments that even sophisticated investors don’t understand, I fear for the stability of our financial system.”

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