The $3.5 trillion commercial real estate market is capsizing. The under-capitalized banking system will need more assistance. And there will have to be another round of fiscal stimulus for ailing consumers, otherwise, foreign holders of US Treasurys will see that the US can no longer provide 25% of global demand and head for the exits.

Bernanke’s back is against the wall. The only thing he can do is print more money, shove though the back door of the stock exchange and keep his fingers crossed. The rest is up to CNBC and the other media cheerleaders.

The Fed chief has committed $13 trillion to maintain the appearance of solvency, but the system is bankrupt. The commercial paper market, money markets, trillions of dollars of toxic debt instruments, and myriad shyster investment banks and insurance companies are now backed by the “full faith and credit” of the US Treasury. The financial system is now a ward of the state. The “free market” has deteriorated into state capitalism; a centralized system where all the levers of power are controlled by the Central Bank. If Bernanke’s Politburo withdraws its loans–or even if he raises interest rates too soon– the system will collapse.

The economy is now balanced on the rickety scaffolding of the dollar. As the Obama stimulus wears off, the rot in the economy will become more apparent. Household red ink is at record highs, so personal consumption will not rebound. That means US assets and US sovereign debt will become less attractive. Foreign capital will flee. The dollar will fall.

The world needs a breather from the US. And they’ll get it sooner than many think.

Mike Whitney lives in Washington. He can be reached at fergiewhitney@msn.net

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