For several years I cautioned that American consumers were funding consumption by literally eating their homes one brick at a time. The "monetize your home equity theme" was a key to the evolution of the sub-prime debacle, with Democrat leaders like Barney Frank & Chris Dodd among major forces that pushed for reduced lending standards in the Clinton era that propelled a subsequent flood of Mortgage and other asset backed paper in the Bush era.

Below, the monthly US Trade Deficit grew nearly 10-fold from 1997 to 2007 peaking at $67 bil/mo from $8bil/mo in 1993/97. The ultimate Shop 'til you drop binge on imported goods & services exported massive quantities of Dollars and growth to other economies. But each $1 of GDP growth seemed to need $6.50 in new debt, up from $2.95 in the early 1990's.

Recent new debt creation levels won't likely be seen again for years to come, if ever, and that's the major US economic problem going forward. US standard of living is declining from unsustainable consumption levels. Exploding new government debt for the bailouts is filling in assorted voids in the financial system - it's not going out to the real world.

US imports soared to 19% of GDP by mid 2008 from the 1970s, after 20 years in a 4 to 5% range (1949/69). Export growth lagged imports for 30 years flowing vast quantities of US$ into foreign hands.

For as long as foreigners were happy trading and holding most of their reserves in US$, it enabled financing America's twin budget deficits, trade & fiscal. The recent US debt ramp up and degradation of the Federal Reserve balance sheet to avert a banking system meltdown, will increasingly steer those foreign owned reserves away from US$ to many alternatives.

No currency has the breadth or liquidity of US$, and no country wants their currency to become a global numeraire as it significantly lessens the ability to control their own monetary policy. We're seeing the early stages of such a search with talk of IMF "SDR's" or a commodity-price related basket to steer away from political domination by the US or other entities like ECB. An outright 'gold standard' seems unlikely, but gold may become the best mirror of relative value as the major currencies go through a turbulent period seeking realignment.

The recent G-20 meeting in London became the first forum for reserve rich / fast growers like China, Brazil, India & Russia to blast the debt-ridden mature G-7 major countries. As the largest US$ holder, China is now Americas main banker. Inscrutably discreet, they're rushing to spend excess US$ on investments in resource and tangible assets globally, while quietly cutting back US Treasury debt purchases.

Arresting a deflationary crash in asset values is the primary objective of Bernanke & Geithner, and markets seem to believe they're gaining in that battle. Restoration of growth to 2004/07 levels is a fantasy, unachievable for years to come in a looming over-regulated & less leveraged financial system. Adding green agenda burdens will only push that process further out.