> Particularly interesting (Doug? Julio?) is his discussion of currency
> inflation for those currencies pegged to the dollar and the inability of
> domestic fiscal policy to change matters.
The mood is a bit gloomy. Back in June, I was looking at the Fed data on bank asset quality and commercial bank balance sheet items with one of my students and, based on the reports of bank writedowns until then, we made a quick, back-of-the-envelope calculation and decided (under some conservative assumptions) that about 65 to 75% of the bad debt was still in the books. I said something about that on PEN-L at the time. It's mostly aggregate data for the entire U.S. commercial banking system. So one can't sort out which banks are in deeper doo doo. But the doo doo is becoming harder to hide under the accounting.
I have no clear idea how things will work out overall. Too many moving parts. And, so far, I have to admit in spite of my original reservations (influenced by my reading of Greenspan's memoirs) that the Fed has done relatively well so far, considering the narrow wiggle room. But I agree with the general idea that once the dust settles, the U.S. economy will be a significantly smaller portion of the global economy.
I only browsed the report. But, IMO, the author is right in emphasizing the role of fiscal mismanagement (the war) in the mess. Very few analysts give it its due, mainly because they take war and militarism as a given.