Frustrated investors would then dump their US Treasury securities. Bond yields would shoot up.

Gazprom is buying up oil (Sibneft), gas, and power companies at knockdown prices, reinforcing its monopoly.

This protected investors from a general sell off of the carry trade and lessened their exposure to idiosyncratic risks.

Many of these highly indebted governments have large stocks of gold, which they may decide to dump to reduce their debts.

The Kremlin thinks that now is the time to buy assets cheaply, using the current financial crisis to emerge as a powerful global economic player.

It has not, despite its still awesome foreign reserves, which give it the wherewithal to buy out a significant portion of the economy at fire sale prices.

In practice, it is only banks that have access to cheap borrowing, so they can reconstitute their balance sheets by borrowing cheaply and lending expensively.

By offering to lend freely against collateral, they liquify assets and prevent banks from being forced to unload loans or securities at fire sale prices.

But the global downturn may also accentuate protectionism, especially if nationalistic impulses gain the upper hand, perhaps stimulated by fire sales of domestic assets (as we saw during the Asian financial crisis).

The unraveling of such a network through panic and runs against financial institutions, asset fire sales, credit crunches, and the like then becomes a nightmare for financial supervisors and monetary authorities alike.

But, as with today s toxic assets, there was no market, and rapid disinvestment would have triggered fire sale prices, depressing all asset values in the economy and resulting in more bank failures.

If a large proportion of a country s assets cannot be liquidated easily, or would be greatly depreciated by a large scale sell off, the fact that assets exceed liabilities would not rule out the possibility of debt default.

All of this implies that the crucial problem is not the fiscal cost of rescue, but the macroeconomic volatility induced by precarious credit supply first provided too easily and at too low a price, and then severely restricted.

With Russia s economy faltering, Putin is finding it increasingly difficult to employ the second tool of power payment.

Instead of exporting oil directly, they could export their energy embedded in metals, chemicals, and manufactured products at prices that undercut anything producers in the oil consuming countries, especially Europe and the US, could match, given their dependence on higher cost alternative energy sources.

Losses in stock markets have a double effect they reduce households wealth and lead them to spend less and they cause massive losses to investors who borrowed to invest in stock, thus triggering margin calls and asset fire sales.

But the reality, revealed by a recent study by the Danish Center for Political Studies, is that less than 10 of the Denmark s electricity demand is met by wind, because much of the power is produced when there is no demand and is sold at very low cost to other countries.