Bob Santamaria predicted the effects of the savings and loans scandals and also said that all the major funds managers would crash and bring the economy to a halt.
Well Bob Santamaria, the NCC and the DLP got it right. The only thing holding back a DEPRESSION is the massive injection of fundsfrom not only the USA but also from the Western nations who will be returning US hard currency to the USA to help the Americans keep the system alive.

I would like to see all speculative products whcih are commonly avaialble to the instiutions and to the public to be criminalised.
Not for the short term but forever as they are moral evils.

This article is a little late. Neil McInnes in 1972 or therebaouts in the AFR wrote a series titled "What do we do with these worthless American dollars".
What they USA did in collusion with other powers was to continue to print dollars (by creating credits in foreigners' accounts)in exchange for crude oil and other imports. The Yanks were seen as the consumers of last resort as other developed economies attempted to export their unemployment. If a country exports assets such as oil, or in Australia's case coal and ores, then it should insist on others real assets in return or at least not wasteful use of those assets in the importing country. The SUVs and other 'yank tanks' wasted the oil the USA was importing. Ten years ago when oil was $10-12 per barrel the Saudi reserves were more that the value of all USA farmland even at $6000 per acre. But will the Saudis ever own or run those farms in exchange for their oil? As Elisa Doolittle commented,'Not bloody likely.'
Free traders fail to distinguish between real assets and produceable products. Australia is consuming imported produceable products in exchange for real assets and employing it's workforce in many of the least worthwhile activities rather than in producing our own produceable products. Some of our current employment activities are no better than taking in one another's washing. Adam Smith would not be impressed.

Was the phenomenal price of a loaf of bread in Germany too much money or not enough bread?

The explosion of credit in Australia and the reduction of dollars in the economy because of persistent surpluses is an interesting mix.

It seems to me that nowhere is the real crux of the American
housing problem discussed. If I overpay for a house in Australia,
if I walk out on the loan and hand over the keys, I am still
liable for the debt. I will lose other assets, my car, furniture
etc, ie basically I will go bankrupt.

If I buy a house in the US, if its value drops by 30% for some
reason and I hand over the keys, I lose the house, but otherwise
I can do so with impunity. If the value of the house does not
cover the loan, that is tough titties for the lender.

Under these circumstances, if people paid too much for houses
and their value drops, it makes perfect sense for an American
to hand back the keys and buy another house, 30% cheaper elsewhere.

When a number of people all do the same and there is a surplus
of houses, the whole system starts to crash like a pack of cards.

No wonder that the US has a problem!

Surely the real, unmentioned problem is that many people in America, as well in Australia, have been living beyond their means for decades. Instead of following the advice of Mr Micawber, of saving up for something instead of going into debt to buy consumables, people all around the english-speaking world have gone down the path of easy debt. Now it is time to pay the piper. Unfortunately for Australia and the US, the debt is owed to foreigners, who are not going to allow the left-wing neo-Keynesians in the west to reduce the value of their asset. Remember that the Chinese definition of "nuclear option" is for them to dump 2 trillion of US Treasury Bonds on the market at the same time, thus destroying the world financial system.

At least the US debt is in their own currency, whereas we do not have that luxury.

What is needed is for:

(a) the Reserve Bank to set the base interest rate at least 5% above inflation.

(b) the Federal government to raise petrol taxes to the european level.

(c) the state governments to raise service charges (public transport fares, electricity charges, etc.) to the level that not only covers costs but gives a good return on capital.

(d) both governments to then use the revenue gained to finance infrastructure works, not from debt, but from income.

All this would result in a considerable cut in the standard of living. However this is inevitable, no matter what is done. The trick is to cut the living standard without increasing unemployment and/or alienating our foreign bondholders.

James is certianly on the right track. But... an even bigger hurdle looms in the short term. The very short term i.e.Friday 26 September 2008.

Congress is having all sorts of doubts and fights over the details of the Bernanke's Bailout. In what has obviously now become a do nothing Democrat controlled Congress procrastination has become the norm and as a result Bernankes proposals might just follow the path of the Off-shore drilling legislation. Originally designed to boast US production and reduce reliance on imported oil.

For those of you who don't know the legislation approved by the Democrat Congress limits oil drilling to outside 50 miles from the coast. That's fine, politically looks good ... but all the oil reserves are within the 50 miles limit ...

If the legislation is approved by Friday ... it won't be ... and Bush won't be able to provide emmergency funding so the financial system of the world might just collapse sooner than most pundits predict.