In November 1910, Senator Nelson W Aldrich and Assistant Secretary of the Treasury Department A P Andrews, and other top financiers, arrived at the Jekyll Island Club to discuss monetary policy and the banking system. The secret meetings led to the creation of the Federal Reserve.

Forbes magazine founder Bertie Charles Forbes wrote several years later:

Picture a party of the nation's greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance.

I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written... The utmost secrecy was enjoined upon all. The public must not glean a hint of what was to be done. Senator Aldrich notified each one to go quietly into a private car of which the railroad had received orders to draw up on an unfrequented platform.

Off the party set. New York's ubiquitous reporters had been foiled... Nelson (Aldrich) had confided to Henry, Frank, Paul and Piatt that he was to keep them locked up at Jekyll Island, out of the rest of the world, until they had evolved and compiled a scientific currency system for the United States, the real birth of the present Federal Reserve System, the plan done on Jekyll Island in the conference with Paul, Frank and Henry... Warburg is the link that binds the Aldrich system and the present system together. He more than any one man has made the system possible as a working reality.

The former Bank of England expert's warning about the 'zombie households' which could be tipped into financial oblivion when interest rates rise were echoed by a series of finance experts last night. One said many people were 'living in a fool's paradise' because of low interest rates.

Mr Gabay did not estimate the number of households in peril. But recent figures from the Council of Mortgage Lenders found that almost 3 million borrowers could be plunged into difficulty if interest rates rise by 2 per cent. Even at the current rock-bottom rates, almost 1.3 million families are already grappling with mortgage payments that eat up more than 35 per cent of their after-tax income, the level at which the Financial Services Authority classes loans as 'unaffordable.'

Mr Gabay said: 'It is an extraordinary position to be in. Fixing government finances is important but is only part of the problem. The other, larger part, is fixing household finances, where in fact the crisis began. It is very politically convenient to believe that the crisis was caused by greedy bankers but nobody made people take out mortgages of five times their income. Lots and lots of people borrowed too much.'

The long-awaited moment of "triple parity" seems imminent. The Swiss franc is already worth more than a greenback, and the Canadian dollar is seemingly poised to break through as well. The surging "Aussie" - widely seen as a play on the China growth story and used by traders as a proxy for the Chinese yuan - captures the shift in the world's economic centre of gravity to the Pacific region. The currency was worth half a US dollar just nine years ago.

Australia's reserve bank said the "the economy is now subject to a large expansionary shock from the high terms of trade and has relatively modest amounts of spare capacity. The risk of inflation rising again over the medium term remains". The move caught markets off guard. Credit growth has been cooling off over recent weeks and inflation is still just at 2.8 percent - compared to 3.1 percent in the UK - but the bank appears concerned about the risk of a wage spiral.

HSBC said emerging markets and commodity exporters such as Australia are opting for "quantitative tightening" to offset the liquidity effects of quantitative easing in the US, which is causing a flood of money into faster growing economies. Several states are toying with capital controls. India's central bank has also tightened further, raising rates a quarter point to 6.25 percent. It has imposed draconian housing curbs to reduce "excessive leveraging" and prick the bubble, limiting mortgages to 80 percent of property values.

HSBC's currency team said the Australian dollar may be nearing its peak. "One concern relates to the deflating of the property bubble in China. This could happen gently but, if not, the Aussie will not avoid the fall-out. A sharp fall in Chinese property prices may very well lead to a deep examination of Australia's property bubble, and Australian banks," they wrote in a client note.

The report said Australia's lenders rely heavily on funding from abroad to finance the country's internal boom, creating a risky mismatch in liabilities. "Rationally or irrationally, this could turn very sour. The Aussie party looks set to come to an end soon," it said.

We heard the first rumbles of trouble from these freshly gathering storm clouds last week when unexpectedly strong UK third-quarter growth caused a minor correction to gilt prices. Yet this was fast forgotten. The latest purchasing managers' index figures, indicating rising confidence in the UK manufacturing sector, were completely ignored.

Bond investors continue to look forward with growing certainty to a slow or nil-growth future, where interest rates and inflation remain subdued for years to come. It's happened before - very low inflation and bond yields have persisted for decades in the past - so why not again?

Yet it's not just prospects for a Japanese-style lost decade that are driving bond yields towards record lows. Anticipation of further QE - whereby central banks flood the economy with cash by buying up government debt - is creating a self-feeding spiral of ever-falling rates. This is an accident waiting to happen.

Yet policymakers seem determined to push ahead with QE2. On Wednesday, the US Federal Reserve is expected to sanction a further $500 billion (312 billion pounds) of bond purchases. And despite vocal objections from at least four members of the Open Markets Committee, Ben Bernanke, the chairman, has indicated a willingness to keep pumping money into the economy on a more or less indefinite basis until core inflation is unambiguously rising again and unemployment is falling. Once markets suspect the inflation genie is out of the bottle, the damage is always swift and devastating.

The exchange said preliminary investigations indicated that the human error "may have occurred in suspicious circumstances", adding that it took the matter "very seriously" and the relevant authorities had been informed. The Financial Services Authority is understood to have been told.

The LSE declined to comment any further on the investigation. Turquoise, which trades the largest European stocks including those listed in France, Germany and the Netherlands, went down at 8.32am on Tuesday before trading resumed at 10.30am, the exchange said. Following the glitch, the LSE has decided to delay adopting the same technology for its main trading system.

Xavier Rolet, LSE chief executive, wants to migrate the exchange's main order book trading platform Sets to new technology that is already in use by Turquoise. The shift would make it faster and more attractive to high-frequency trading firms that generate large volumes. Tuesday's disruption marks the second glitch in less than a month. On October 5, a problem with a network card forced the exchange to shut the system for over an hour. Last month's problem came only two days after Turquoise had moved across to the new technology platform.

In April, it was Eyjafjallajokull. Now, there is a new threat from Iceland to European air travel: Grimsvotn. Meltwater is currently gushing from a glacier above Iceland's most volatile volcano, suggesting significant sub-glacial seismic activity. On Monday geophysicists told reporters that the flood at the remote southeastern Vatnajokull glacier could be an indication that the Grimsvotn volcano underneath is about to erupt once again - raising fears of a repeat of the immense ash clouds last spring which seriously disrupted both trans-Atlantic and European air travel.

So far, says Gunnar Gudmundson from the Icelandic Meteorological office, no underground tremors have been detected. Such tremors are often a reliable signal of an impending eruption. But scientists are monitoring the mountain closely for further tell-tale indications that it is about to blow its top.

The Grimsvotn volcano magma chamber lies buried under 650 feet of glacial ice and volcanic lakes. Movements of magma could be responsible for melting the ice above. Pressure then builds up under the ice until water is forced up to the surface of the glacier. The resulting "glacial blasts" have been known to send huge clouds of ice, fine ash and dust into the skies. Grimsvotn last erupted in November 2004, spewing volcanic ash 40,000 feet into the atmosphere. The ash fell to earth as far away as Scandinavia and caused temporary disruption to local air travel.

At the same time, inventories are at their lowest levels in decades. "All buyers we see are buying on a hand-to-mouth basis," said Peter de Klerk of Czarnikow, the London sugar merchant. That has pushed prices up sharply, with raw sugar futures in New York soaring 135 per cent from a low of 13 cents in May.

On Tuesday ICE March sugar rose 4 per cent to a peak of 30.64 cents a pound, surpassing the level reached in February and rising to their highest point since 1980, when prices jumped to nearly 45 cents. The dramatic rise in sugar prices is causing headaches for policymakers. While sugar is widely available in the west and its price is rarely considered, it is an essential source of cheap calories in emerging economies, where surging sugar prices are driving food inflation.

On Tuesday India's central bank raised benchmark interest rates for the sixth time this year in an attempt to curb inflation. New Delhi has emerged as a crucial factor in the sugar market, as India's harvest is expected to be large, but the government is still debating how much sugar to allow the country's industry to export. Traders expect India to authorise exports of 1-2 million tonnes starting in December. Anything less, or even a delay to the decision, could send prices spiralling higher, traders warn.

"I think a 20 percent decline in the dollar is possible," Gross said, adding the pace of the currency's decline was also an important consideration for investors. When a central bank prints trillions of dollars of checks, which is not necessarily what (a second round of quantitative easing) will do in terms of the amount, but if it gets into that territory - that is a debasement of the dollar in terms of the supply of dollars on a global basis," Gross told Reuters in an interview at his PIMCO headquarters.

The Fed will probably begin a new round of monetary easing this week by announcing a plan to buy at least $500 billion of long-term securities, what investors and traders refer to as QE II, according to a Reuters poll of primary dealers. "QEII not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices," Gross added.

Control of the House sets up Republicans to block Obama initiatives. The president phoned John Boehner, the likely new House Speaker, to say he hoped to "find common ground" with him. Speaking after his own re-election, Mr Boehner vowed to cut spending and reduce the size of government. He said voters had sent Mr Obama a message to "change course". Compounding the misery for Mr Obama's camp, a Republican captured the president's old Senate seat in Illinois.

While some of the Tea Party's most eccentric candidates lost their races, the conservative wing of the Republican Party is now a power in the land, BBC North America editor Mark Mardell reports. This is hugely difficult for the president, our editor says. While there will be much talk of compromise and reaching deals, many Tea Party supporters' explicit aim is to block and undo Mr Obama's agenda.

Up for election were all 435 seats in the House (the lower chamber of Congress), 37 of the 100 seats in the Senate, governorships of 37 of the 50 states and all but four state legislatures. With counts still to be completed, projections suggested the Republicans had obtained a net gain of 57 seats in the House, more than in the tumultuous 1994 mid-terms.

According to Pamela Smith, who heads the Election Protection Command Center, a national non-profit, non-partisan vote monitoring organization, early results from volunteers around the country and from voters who call a toll-free number show that reports of vote flipping and other problems are already severe enough to "cause concern." Smith said problems with iVotronic machines have cropped up in Pennsylvania's Lawrence County, where voters trying to vote a straight party ticket registered their votes for another party - in essence, flipping the votes.

In these cases, voters tap one spot on the touch screen and another lights up. "It is like when you use an ATM and hit withdraw and check balances lights up," said Susan Greenhalgh of Verified Voting, a nonprofit organization that advocates reliable and publicly verifiable elections. "In one case a voter called the poll worker in to help, and neither could get the machine to vote properly," Smith said.

There has been concern in the past few weeks over the security and reliability of the iVotronic touch screen voting machines.

Reports from Texas, West Virginia and other states have found that the machines can misclassify votes, and a recent report by former CBS News anchor Dan Rather showed that the machines are constructed in the Philippines under "sweatshop conditions" that cause malfunctions. In North Carolina, the state Republican Party has sued to force election workers to notify all voters of problems with the machines, preserve all ballots and personal electronic programs and have voting officials keep detailed records of all complaints at voting stations.

The following ratios were compiled using data from 2004 National Safety Council Estimates, a report based on data from The National Center for Health Statistics and the US Census Bureau. In addition, 2003 mortality data from the Center for Disease Control was used.

- You are 17,600 times more likely to die from heart disease than from a terrorist attack.

- You are 12,571 times more likely to die from cancer than from a terrorist attack.

- You are 11,000 times more likely to die in an airplane accident than from a terrorist plot involving an airplane.

- You are 1048 times more likely to die from a car accident than from a terrorist attack.

- You are 404 times more likely to die in a fall than from a terrorist attack.

- You are 87 times more likely to drown than die in a terrorist attack.

- You are 13 times more likely to die in a railway accident than from a terrorist attack.

- You are 12 times more likely to die from accidental suffocation in bed than from a terrorist attack.

- You are 9 times more likely to choke to death on your own vomit than die in a terrorist attack.

- You are 8 times more likely to be killed by a police officer than by a terrorist.

- You are 8 times more likely to die from accidental electrocution than from a terrorist attack.

- You are 6 times more likely to die from hot weather than from a terrorist attack.

Passenger profiling has been resisted by previous Home Secretaries because it means far greater numbers of travellers will be stopped, searched and barred from flying. Home Secretary Theresa May has refused to rule out the introduction of passenger profiling.

This will anger libertarian Tory MPs and Liberal Democrats who have made much of their wish to end the 'Big Brother' state. But Mrs May told MPs: 'We are in a constant battle with the terrorists. They are always looking for another way, another innovative way, in which they can try to get around our defences. Our job, and the job of our security and intelligence agencies and the police, is to ensure that we are doing all we can to make sure that there are no gaps in our defences.'

Ryanair chief executive Michael O'Leary warned against overreacting. 'Every time we have a terrorist scare, the first thing that goes out the window is common sense,' he said. 'We in the aviation industry are all for effective security measures such as taking knives off passengers, but we are all opposed to ludicrous and ineffective measures.'

Whether prolonged or sudden, the transition to a stable monetary system will become possible only when the shortcomings of the status quo become unbearable. Such a transition is, by definition, nonlinear. So central-bank soothsaying based on the extrapolation of historical data and the repetition of conventional wisdom offers no guidance on what lies ahead.

It's amazing that there is no intelligent discourse among policy leaders on the subject of monetary rot and its implications for the future economic and political landscape. Until there is fundamental monetary reform on an international scale, most economic forecasts aren't worth the paper on which they are written.

Telltale signs of future trouble aren't hard to spot. Only a few months ago, Federal Reserve Chairman Ben Bernanke and a chorus of other high-ranking Fed officials were talking about exit strategies from the US central bank's bloated balance sheet and the financial system's unprecedented excess liquidity. Now, those same officials are talking about pumping more money into the system to stimulate growth.

Gold is an imperfect, but comparatively reliable, market gauge for the extent of current and future monetary destruction. The recent acceleration in the dollar price of the metal to $1,381, a record high in nominal terms, coincided with talk of a new round of quantitative easing and highly visible discord among major nations on trade and currency-valuation issues.

Naysayers point to gold's price and see a bubble, without understanding that the only acceleration that is taking place is in the rate of decline of paper currency. The Fed is organizing an attack on the dollar's value, believing that this is the most expedient way to defuse deflationary market forces. The man in the street is unaware, a perfect setup. Inflation can only be successful when the public doesn't see it coming.

The sudden torrent of commentary on gold isn't the sign of a bubble. Anti-gold pundits provide a great service to those who grasp this historical moment: They facilitate the advantageous positioning of the one asset most likely to be left standing when the dust settles.

The Fed's "QE2" risks accelerating the demise of the dollar-based currency system, perhaps leading to an unstable tripod with the euro and yuan, or a hybrid gold standard, or a multi-metal "bancor" along lines proposed by John Maynard Keynes in the 1940s. China's commerce ministry fired an irate broadside against Washington on Monday. "The continued and drastic US dollar depreciation recently has led countries including Japan, South Korea, and Thailand to intervene in the currency market, intensifying a 'currency war'. In the mid-term, the US dollar will continue to weaken and gaming between major currencies will escalate," it said.

David Bloom, currency chief at HSBC, said the root problem is lack of underlying demand in the global economy, leaving Western economies trapped near stalling speed. "There are no policy levers left. Countries are having to tighten fiscal policy, and interest rates are already near zero. The last resort is a weaker currency, so everybody is trying to do it," he said.

But whatever the rights and wrongs of the argument, the reality is that a chorus of Chinese officials and advisers is demanding that China switch reserves into gold or forms of oil. As this anti-dollar revolt gathers momentum worldwide, the US risks losing its "exorbitant privilege" of currency hegemony - to use the term of Charles de Gaulle.

The innocent bystanders caught in the crossfire of Fed policy are poor countries such as India, where primary goods make up 60 percent of the price index and food inflation is now running at 14 percent. It is hard to gauge the impact of a falling dollar on commodities, but the pattern in mid-2008 was that it led to oil, metal, and grain price rises with multiple leverage. The core victims were the poorest food-importing countries in Africa and South Asia. Tell them that QE2 brings good news.

So the question that Ben Bernanke and his colleagues should ask themselves is whether they have thought through the global ramifications of their actions, and how the strategic consequences might rebound against America itself.

Americans have lived beyond their means for decades. It was a culture long defined by a mantra of entitlement, one that promised opportunities for all while ignoring the risks. Relentless and seemingly unstoppable upward mobility was the secular religion of the United States. Alan Greenspan, the former chairman of the Federal Reserve, established the so-called ownership society, while Congress and the White House helped free it of the constraints of laws and regulations.

The dream was the country's driving force. It made Florida, Hollywood and the riches of Goldman Sachs possible, and it attracted millions of immigrants. Now, however, Americans are discovering that there are many directions that life can take, and at least one of them points downward. The conviction that stocks have always made everyone richer has become as much of a chimera in the United States as the belief that everyone has the right to own his own home, and then a bigger home, a second car and maybe even a yacht. But at some point, everything comes to an end.

The United States is a confused and fearful country in 2010. American companies are still world-class, but today Apple and Coca-Cola, Google and Microsoft are investing in Asia, where labor is cheap and markets are growing, and hardly at all in the United States. Some 47 percent of Americans don't believe that the America Dream is still realistic.

The Desperate States of America are loud and distressed. The country has always been a little paranoid, but now it's also despondent, hopeless and pessimistic. Americans have always believed in the country's capacity for regeneration, that a new awakening is possible at any time. Now, 63 percent of Americans don't believe that they will be able to maintain their current standard of living.

And if America is indeed on the downward slope, it will have consequences for the global economy and the political world order.