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We’ve moved from the imminent collapse of bank balance sheets and trade credit to the work-out phase, both in the real economy and for the national debt now underpinning the banks.

Tim Duy via Economist’s View says:

Once the deleveraging is complete, foreign investors will realize they are now awash in Dollar denominated assets at a time when the US Treasury is expected to unleash an unprecedented quantity of such assets on global financial markets. The Dollar and commodities will reverse direction accordingly… I admit to being sympathetic to this story, but would note that sufficient slack looks to be opening up in the global economy to absorb these assets (especially if China continues to backstop the US economy). I assume this is the Fed’s view as well. If the Fed is in error, the yield curve should steepen dramatically in coming months.

Some amusing graphics - the first on who is going to rescue whom…

To these two without a net you can now add the government, with the Fed’s balance sheet now at $1.8trn and holding who knows what.

For some scale on American bailouts over the past 40 years - here is the complete record from Propublica (in 2008 dollars). The right hand five are all in 2008 alone. The big one on the right is the Paulson - not counting the pork. Moving left we have a tiny green auto industry tidbit, a brown AIG, a blue Fannie/Freddy, a light blue Bear Stearns (remember when that was a big deal?). The tiny red dot was Penn Central Railroad in 1970.