One of the biggest challenges facing the Fed is widespread ignorance about how it actually operates. Inflation is falling, unemployment is 10%, yet some people think it’s running an inflationary policy because an extra $1 trillion of reserves are in the banking system.

The dollar comes under increasing pressure.

The credit crunch vindicated the bears, although some were right for the wrong reasons. They did not expect subprime mortgages to bring the global economy down. Instead they thought the crisis would be caused by a collapse in the dollar, and a jump in Treasury-bond yields, as foreigners balked at funding America’s current-account deficit.

Whilst this world's commerce still rotates on the unsteady axis of paper currencies, we will be subjected to a great deal of volatility and uncertainty. Without doubt, the US dollar has been the lynchpin of post World War II trade and finance but has started to falter as it begins to reflect crumbling internal finances.

The economy may be pulling out of recession but unemployment is still surprisingly high. Celebrations should be delayed.

Taxes are unpopular, and so are public-spending cuts. Democracies may thus have an innate tendency to run up budget deficits. How to control the politicians’ urge to splurge?

Optimism that banks’ fortunes have reached bottom may be premature.

Paper Mill on the Potomac
The paper mill on the Potomac is furiously spewing up new money. According to the manager of the mill, as indeed according to the Quantity Theory of Money, this should stop prices from falling and the economy from contracting.

It is 1979 and Harry “Rabbit” Angstrom, the hero of John Updike’s series of novels, is explaining to his wife why he has just spent more than $11,000 on 30 gold krugerrands. “The beauty of gold is, it loves bad news,” he says. Three decades later, gold is once again thriving on despair. Before Christmas, a troy ounce could be bought for around $800. By the third week in February, gold was trading at close to $1,000 an ounce.

When it comes to the global economy, there’s a huge surplus of bad news and there’s a good chance that more is coming.

By every measure — lost jobs, plunging stock prices, scarce credit and a profound loss of confidence in the banking system — the economy is in awful shape.

The nation's 11th recession of the postwar era began in December 2007 and easily could become the longest since the Great Depression, although most foreacasters expect a weak recovery to begin in the second half of this year.

America’s return to thrift presages a long and deep recession

Debbie Jeffries could see it coming. When she manned the cash register at Linens ’n Things, the household-goods chain where she has worked for 14 years, a customer would sometimes open her wallet and display 15 credit cards. “That people can pull out that many credit cards—that’s insane. You say, whoa, maybe that’s why we’re here. We have so much debt.”

After the most eventful and creative six weeks in the history of central banking, a half-point interest rate cut by the Federal Reserve on Wednesday October 29th was almost anti-climactic. Nonetheless, it was an important strike at the deepening recessionary forces surrounding the American economy, and the Fed made it more significant by jettisoning concerns about inflation from the statement accompanying its action.

DEPRIVE a person of oxygen and he will turn blue, collapse and eventually die. Deprive economies of credit and a similar process kicks in. As the financial crisis has broadened and intensified, the global economy has begun to suffocate. That is why the world’s central banks have been administering emergency measures, including a round of co-ordinated interest-rate cuts on October 8th. With luck they will prevent catastrophe. They are unlikely to avert a global recession.

During the six months to the end of June commodities posted their best performance in 35 years, rising by 29%. In July they had their worst month in 28 years, falling by 10%. The slide continues.

When the credit crunch hit a year ago, the pessimists predicted a global recession. The optimists, by contrast, thought the rest of the world would be able to decouple from the problems of the American housing market.

So how exactly are gas prices set? What determines the hair-pulling figure you see displayed in large electronic or plastic numbers? Why is a gallon of gas, say, $4.11 -- not $4.10 or $4.12? Why is the price different across the street?

It all starts with oil.

One of the main selling points of commodities, according to the financiers who have been cheering their vertiginous ascent over the past few years, is that they do not move in lockstep with other assets.

The price of raw materials continues to rise despite the economic gloom.

Bankers and policymakers may be wringing their hands about the prospects for the world economy, but commodities traders, it seems, see no cause for concern. On February 20th the oil price hit a new record of $101.32 a barrel.

The latest U.S. national statistics are gloomy. Yet America's economic downturn will be felt unevenly.

The long-run value of all paper currencies is zero. That is a fond saying of Bill Bonner, goldbug and publisher of the Daily Reckoning, a contrarian financial newsletter. So why should the U.S. dollar be any different?

As the dollar's decline accelerates, you know that nerves are taut when a couple of stray comments set off a flurry of selling. The dollar fell sharply on Wednesday November 7th after mid-ranking Chinese officials, not actually responsible for foreign-exchange policy, made remarks that were seized upon by already jittery markets.

Now that home mortgage defaults are spreading like wildfire from coast to coast, there is a growing sense of certainty that the government will attempt to bail out homeowners and lenders. The ideas put forward last week by President Bush may be the camel's nose pushing under the bottom of the tent. However, just as some things are too big to fail, this problem is far too big to fix.

Chinese students may come top of the world league in mathematics, yet the country's economic numbers are notoriously dodgy. New figures showing that China's GDP growth quickened to 11.9% in the year to the second quarter, its fastest since the mid-1990s

So the price of oil is creeping back up towards a record high. A barrel of the black stuff cost around $75 in London on Tuesday July 10th—or a few dollars less in America—as prices return to the heady days of a year ago.

Since 2001, the nation's economic growth has been powered by the real estate industry, particularly mortgage-equity withdrawals. Without housing to prop it up, the economy is in trouble.

“What’s that coming over the hill? Is it a monster?” The Automatic, an indie-rock band, might almost have written its recent hit with the stockmarket in mind.

One could almost feel the breeze as Wall Street heaved a sigh of relief. On Wednesday February 14th, Ben Bernanke, the chairman of the Federal Reserve, testified before Congress regarding the central bank’s twice yearly monetary report.

A fall in commodities prices raises concerns about the appetite for risky assets.

It never ceases to amaze how televised media reports on the U.S. economy are almost exclusively about shopping. Such reports almost always feature images of sales clerks frantically stocking shelves and long lines of consumers swiping their credit cards.

Thanks to the vigour of Asia's consumers, it is a good time for the American economy to slow. It is a commonplace that American consumers have kept the world economy spinning. Asians are frugal, Europeans are gloomy, so if Americans do not keep spending as fast as they have been lately, the world economy is in trouble.

Three years ago Rose Hill estates was a dairy farm in Loudoun County. Now it is in the front line of America's housing slump. The rolling fields are dotted with cut-price McMansions.The asking price for new houses, complete with gourmet kitchens and “extended libraries”, has been slashed by 20%.

The world's climate has barely changed since the industrial revolution. The temperature was stable in the 19th century, rose very slightly during the first half of the 20th, fell back in the 1950s-70s, then started rising again. Over the past 100 years, it has gone up by about 0.6°C (1.1°F). So what's the fuss about?

A new book predicts that climate change is likely going to be abrupt and cataclysmic—and that these sudden shifts could cripple national economies.

As tensions increase between the United States and Iran, U.S. intelligence and terrorism experts say they believe Iran would respond to U.S. military strikes on its nuclear sites by deploying its intelligence operatives and Hezbollah teams to carry out terrorist attacks worldwide.

You know something is afoot when Ted Kennedy and Bill O'Reilly start singing together. The senior senator from Massachusetts and the pundit-in-chief of Fox News can usually be relied upon to produce nothing but discord. But when it comes to rising prices for gas, they are in perfect harmony.

Is housing set to blow, or are there more gains ahead? Here's how to navigate an anxious market.

Is it too late to get out of the real-estate market? Is it too early to get back in? Newsweek interviews an expert on the mysteries of the bubble.

Futures traders are already assuming sky-high prices are here to stay. Everyone knows it: oil prices have gone through the roof. The price of benchmark crude rose 11% this year alone, to about $67 per barrel, before pulling back a little.

The US economic expansion probably would have ended somewhere in the mid-1990s were it not for the influx of foreign capital due to numerous currency crises during that decade. The general stock market had already run out of steam by 1999 and by 2001 it looked like the market might collapse, dragging the US economy with it. Aggressive interest rates reductions prevented a collapse by fueling a real estate boom that kept both the stock market and the economy on life support. But now it seems that even the real estate market can take no more.

The run-up in prices above $500 an ounce seems driven by investors and speculators. Take your pick of which anxiety is likely motivating them.

Five major risks threaten the world economy. Three centre on the United States: renewed sharp increases in the current-account deficit leading to a crash of the dollar; a budget profile that is out of control; and an outbreak of trade protectionism.

You can see how the housing bubble is bursting in places like Columbus, Ohio, where builders and lenders threw common sense away and enticed people to buy homes they couldn't afford.

Had you been told in late 2001—not long after that September's terrorist attacks, and when stockmarkets had been tumbling for 18 months or so—that the price of crude oil would more than triple within four years, you might well have predicted global economic meltdown. The price of a barrel of West Texas Intermediate has risen from $18 in November 2001 to record levels: it hit yet another new high, above $67, this week. This is similar in scale to the price jumps of 1973-74, 1978-80 and 1989-90, all of which were followed by worldwide recession and rising inflation. Today, though, global GDP growth is well above trend, while inflation remains low. Why has the world economy fared so comfortably this time?

Beijing, not Washington, increasingly takes the decisions that affect workers, companies, financial markets and economies everywhere

After two months of fruitless drilling, Austrian-born mining engineer Anthony Lucas was ready to give up on ever finding oil beneath a sandy hill in southeastern Texas. Then suddenly, the ground rumbled and a jet of greenish-black crude shot out of the Spindletop well, spewing oil 60 metres into the air.

Prices are sky-high, with profits to match. But looking further ahead, the industry faces wrenching change, says Vijay Vaitheeswaran

China is the world's second-largest consumer of oil. It has about 20 million cars and trucks now. By the year 2020, that may be 120 million.

A giant contract between Shell and the Gulf state of Qatar to supply liquefied natural gas to America and Europe is the latest in a series of deals that should lead to gas providing a far larger share of the world’s energy needs. Since the world’s gas reserves are more widely spread than is its oil, the growth in facilities for handling LNG should also mean greater energy security.

During the first week of February, as widely expected, Alan Greenspan and his colleagues at America's Federal Reserve raised the federal funds rate for the sixth time since last June, to 2.5%. Six rate rises at six successive meetings may sound tough, yet real interest rates (estimated by the federal funds rate less the headline rate of consumer-price inflation) are still negative. And not content with running a lax monetary policy at home, America is also exporting its super-loose ways around the globe.

China's economy re-accelerated in the last quarter of 2004, despite official efforts to curb rampant investment. Is it growing too fast to keep its balance?

The sliding dollar could help to redress America's economic imbalances. But don't count on a smooth ride.

A further steep decline in the dollar seems inevitable. MOST economists, and this newspaper, have been fretting about America's huge current-account deficit and predicting the dollar's sharp decline for years. The trouble with crying wolf too often is that people stop believing you. After slipping 14% in broad trade-weighted terms since 2002, the dollar had stabilised this year, even as the current-account deficit continued to grow. This has encouraged some economists to offer theories explaining why America's current-account deficit does not matter and why the dollar need not fall further. But the dollar has now started to slide again. Trust us, the wolf is real.

What might oil producers do with all that extra cash?

WHY are oil prices so high? That is a question to which the International Energy Agency, a quasi-governmental agency representing oil-consuming nations, would like an answer. Oil, as headlines have been screaming, this week reached a new record of $47. The agency's boffins are unimpressed. The title of the latest IEA report on oil, “Irrational Exuberance”, was a phrase made famous by Alan Greenspan, chairman of America's Federal Reserve, as he pondered the elevated levels of the stockmarket in 1996, albeit well before the share-price bubble burst.

Stocks made some gains last week as the Dow and S&P 500 reversed from tests of their trading range lows to close higher on the week while the Nasdaq Composite rallied from a new 10-month low set earlier in the week. The dollar rocketed higher and probed the long-term downtrend line which has thus far capped all rallies during the bear market while gold reversed most of its weekly loss to close slightly higher. And the "transitory" (Fed lingo for "don't worry, be happy!") upsurge in crude oil prices hit another "transitory" lifetime high last week as futures approached the "transitory" level of nearly $44 per barrel.

On June 30^th, America's central bank raised short-term interest rates for the first time in four years, but only by a quarter percentage point to 1.25%. The move was so well flagged by Alan Greenspan and his colleagues that it surprised no one. Nonetheless, it is a significant turning point. After cushioning the economy from serious recession by slashing rates to 1%, Mr. Greenspan now faces an equally tricky task: to tighten today's extraordinarily loose monetary policy without derailing the economy.

Where are we now along the long-term inflation/deflation curve? Are we heading, as many commentators now assert, into a period of hyper-inflation similar to that of the 1970s? Or is the country moving the opposite direction into spiraling deflation (as Bob Prechter, et al, contend)? Is it possible that both sides in the debate are wrong and that the answer lies somewhere in the middle? I believe this is a distinct possibility (nay, a probability) and I’ll outline my position in the paragraphs that follow.

After three difficult years, money is again flowing to the venture-capital industry. Can it curb its exuberance this time?

Oil prices are not as high as they look, nor yet a big threat to economic growth

Drug addicts get only a temporary high. America's economy, addicted to asset appreciation and debt, is no different.

Could one of the longest bear markets of the last century finally be over? It certainly seems to be the case after the Dow Jones Industrial Average made a dramatic about-face in October. After hitting a low of 7,286 points on October 09, the Dow roared back with a 1,000-point-plus gain by month's end (up nearly 16% in value from its low). And November has been off to a flying start, too. Moreover, these impressive gains have come hot on the heals of one of the Dow's worst ever beatings for the month of September, when it dropped 12% in value.