On November 29, 2009, the government of Dubai shocked the world with a statement acknowledging trouble with its debt load. Dubai World, a government-owned conglomerate that was the conduit for the country's oil-fueled debt extravaganza that had literally transformed the nation, asked for a “stand still” from creditors in order to extend maturities until May 30, 2010.

It came while the financial system was still in a state of shock, where uncertainty was actually the best case. The global economy was starting to look like it had found its bottom after the ravages of a worldwide “recession”, but with so much still in question further problems that might develop were given unusual scrutiny. That was true especially of what otherwise might have been small issues.

Dubai, though a major oil hub, had they run into similar problems a few years earlier would barely have made a dent in the financial system's consciousness. The operating paradigm before the middle of 2007 was risk at all costs, largely because it was viewed there weren't any real costs (over time).

While there was much to be rethought after August 9, 2007, the day the funding system changed, the full paradigm shift probably didn't really start to take root until the failure of Bear Stearns in March 2008. From that point on, the potential cost of risk was displayed for everyone to see; and it was much more than trivial.

As noted last week, for authorities, particularly monetary officials, Bear was treated as the end, the final act of a small mortgage crisis largely contained by the Federal Reserve's belated but good work. In many ways it has proved to be the end, just not at all in the manner anyone had expected.

Take the “weak dollar” that had prevailed previous to the failure. It had become the wink and nod de facto policy of the Bush administration, complicit with the Federal Reserve and its ultra-low interest rate policy to push the exchange value of the dollar lower in order to stimulate American growth and economy despite its strong dollar official commitment.

Wrong.

Bear did prove to be the long-term end of the weak dollar, but for very different reasons starting with the “weak dollar” itself. If we instead view the period before March 2008 as one having an abundance, even over-abundance, of dollar (really “dollar”) supply, then the reverse in a rising dollar would be constrained supply occasionally to the point of general, broad liquidity issues. Maybe even a global “dollar” run or two.