The Telegraph warns this morning of a global financial meltdown. Although the IMF has upgraded the world forecast for 2008, they have also said there is a “chance of a global recession.” Hmmm...

The eurozone is sliding into a recession faster than the United States, the British paper continues. The U.S. current fiscal crisis is the push over the edge that the global economy has feared. The dark twins of the mortgage market have foreign investors nervously chewing their fingernails, as one out of 10 American mortgages are, in essence, owned by institutions and governments in other countries.

The Treasury Department reports that as of June of last year, China holds $376 billion in securities issued by Fannie and Freddie, and Japan holds another $228 billion. While these securities aren’t guaranteed by the U.S. government, the New York Times reports, “the housing giants...have attracted overseas investors with a simple pitch: the securities they issue are just as good as the United States government’s, and they usually pay better.”

Unfortunately, the United States now looks like a giant, international credit risk. And although the idea of Congress issuing a “blank check” to bail the mortgage giants out is worrisome to most, in order to keep the foreign investors the U.S. so heavily relies on (somewhat) confident in the country, Congress really has no other choice. Treasury Secretary Hank Paulson said on “Face the Nation” yesterday that he was “very optimistic that we’re going to get what we need from Congress. Congress understands how important these institutions are.”

Yup...and so are our friends in the Far East.

*** A word about the dollar’s decline from our intrepid correspondent, Byron King:

“The most important economic trend is the long-term decline of the U.S. dollar. That’s it, hands down.

“There are lots of reasons for the dollar’s decline. No. 1 is chronic deficit spending by the federal government. And No. 2 is chronic trade deficits that have flooded the rest of the world with depreciating U.S. dollars.

“Now those dollars are coming back to haunt us, and I don’t just mean things like buying the Chrysler Building. Those dollars are competing for barrels of oil and bushels of wheat.

“Most of the reasons for the declining dollar are like self-inflicted wounds by U.S. politicians and policymakers. We live in a nation whose policy discourages saving and long-term investment, especially in energy systems. And the culture, backed up by monetary policy, encourages overconsumption. How else can we explain the serial ‘booms’ in the dotcoms, housing and, now, commodities?

“This is not just me bellyaching, either. There’s a fundamental economic misallocation at work here. Why do people make bad decisions? Because they can. Why do people jump off bridges? Because they are there.

“People expect that at the end of the day, the U.S. Treasury and Federal Reserve will be down below with a safety net. The monetary gurus will just goose up the money supply to maintain peace in our time. But the long-term price is inflation and a declining dollar, which ruin savings and destroy capital.

“The declining dollar is affecting everything. The dollar decline has much to do with the rising prices for precious metals, energy, other basic commodities and foodstuffs. Sure, there are issues with growing world population (a ‘net’ of 130 million new mouths to feed every year). And the Peak Oil thesis is entirely valid.”

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.