Bubble vary in size but not in shape. And the smaller bubbles are the better we all live. Alas the mega world bubble which started ballooning dangerously right after the dotcom demise and later the painful September 11, leaves us now no other choice than accepting the facts. To begin with we have the Financial Times reporting that Europe is a massive bubble threating to explode.

July 8 2007 - The European leveraged finance market is an unsustainable bubble, according to almost 60 per cent of respondents to a survey conducted by leading law firm White & Case and In-House Lawyer magazine. Of these, almost 80 per cent expected the bubble to burst in 6-12 months’ time.

To perpetuate this cycle of gloom and doom, we have the unavoidable war costs, which you will never hear about when socializing. Right now the monthly average spending is a “mere” $12BN. Yes, for some war money is worth nothing. This is precisely why the taxpayers always foot the bill. Since the war on terror has started, do the math. But it is very unlikley that costs with go down anytime soon… Some bright minds like Stiglitz, foresee the financial escalade and project an amount up to 10 times more than previously thought.

Yes, 10 times more. And since the Euro has just hits new record high against U.S. Dollar which trades now at $1.37 amid worries about U.S. economy. Here are our 2 cents: do not watch the Dow but the Greenback because the lower it gets the higher is the risk of a historical sell-off.

Richard Bookstaber, a onetime “chief risk officer” at Wall Street’s Salomon Brothers - has written a book Wall Street would hate you to read: in “A Demon of Our Own Design,” he warns that the spread of arcane nancial instruments - CDOs, credit swaps and a host of others - has made financial disasters inescapabale.

How serious can he be? Well, when we see a quite conservative columnist endorsing his vision and working for a mainstream source, there is something brewing. ‘AAAsking for trouble’ is indeed the headline in the Economist this week which you shouldn’t miss. The article contains several worthy reminders:

In the depression-era 1930s, when credit worthiness was all that mattered, American government bonds were rated AAAAA—as if the more letters you attached to a borrower, the safer they would seem. In more recent times, the triple-A designation has done the trick. Whether attached to government debt, federal agencies or the strongest corporate borrowers, it has stood as a gold standard among ratings, lowering borrowing costs and reassuring creditors… During the 1980s and 1990s, scarcity only enhanced its standing. The number of companies issuing such high-grade debt dwindled, as corporate-finance theory encouraged companies to borrow more heavily to increase earnings. According to Standard & Poor’s (S&P), a rating agency, only six American non-bank companies carry a triple-A rating today, including Berkshire Hathaway and General Electric…. But the rating is coming in for some stick from politicians and pundits alike, because it has cropped up in connection with that most unsound of loans, subprime mortgages. These are anything but triple-A, but can be repackaged into securities via collateralised debt obligations (CDOs) in a way that makes default an extremely low mathematical probability. In the process, such ratings have made the agencies a great deal of money. Moody’s, for example, made more than 40% of its revenues from rating structured products such as CDOs last year.

The editorial published by the Economist begins with describing the depression-era and the influence of “debt rating”… precisely because it was debt the root cause of the debacle at the time.

Meanwhile in the time.uk, they follow the U.S debt crisis attentively.

Mortgage banks are expected to foreclose on 1.8 million American home loans this year as already-stretched “sub-prime” borrowers contend with rising interest rates, according to new research.Mortgage banks are expected to foreclose on 1.8 million American home loans this year as already-stretched “sub-prime” borrowers contend with rising interest rates, according to new research….

Problems in America’s housing market begin to undermine confidence in the global credit bubble The Economist concludes as of the 13th of July.