JLak wrote:The $7.76 trillion should not be compared to GDP. It should be compared to exports. Remember that Weimar crashed not because they couldn't send the money, but because the other nations demanded trade goods. The total debt could easily reach 10 times the yearly export capacity of the entire country. It's impossible to pay back already. The question is whether the US will be able to service the debt when the demand for treasuries drops. At that point they can either default on the debt or just press a few buttons to create all the electronic money they want. Isn't technology wonderful?
What if the US government defaults? Every bank in the world would fail immediately. Now that's deflation! It's also clear that there will be no way to pay for the government itself. (i.e. Anarchy)
What if the US government creates the money? We've seen this one before; it's called hyperinflation and it makes private business impossible. (i.e. Totalitarianism)
What if the US government disciplines itself to run a surplus again? Yeah right!
As a people, we Americans are no longer certain which of these eventualities inspires the greater fear.
However, there is one thing that can and probably will save our ass once again just as it has before. If a much greater crisis erupts somewhere else, then the old corporate USA is once again the safe haven and guiding light of the world.
Of the three likely scenarios, the first two will destroy the value of or ability to redeem any asset whether it be hard cash or complex derivatives, so the only way you'll get out of this one with your wealth intact is the last one. While you should prepare yourself and your family for the worst, you really just have to invest what's left in a business that has real value in a sane economy and hope the portfolio rides it out.
-Lak
JLak,
good summary.
I agreed.
Unfortunately, for me it looks like your point 2 - i.e. Hyperinflation-Totalitarism - is the future we are rapidly heading.
Deflation - even with devastating short time implication - is on the end just correction of the market. Necessary contraction of ballooned ones. It destroyed bed loans, weak business, but (without state interventions) base the situation for the more stability in future. I would not say "anarchy" for deflation since the state force instruments probably remained strong enough to enforce "stability". On the other hand - since huge mass of people are without anything (plain poor) - there is nothing to steal...
On the other side in your second possibility (most real unfortunately) - The "Anarchy" is just the First Phase of the Totalitarism.
Even if I do not like to "predict" future - the logical sad progression is:
1. the financial and political establishment realise that there is enormous balloon.
2. they know that there are two possibility: a)do not intercede - balloon will deflate with all implications, b)intercede - try to inflate (with other words - rob the citizens)
3. since on the World today we have a "system error" based on the dollar monetary dominance - each action on the dollar will automatically transferred to the whole planet... i.e. worlds citizens.
4. Obviously US establishment has decided to try fighting "deflation" with inflation.
5. Other countries are very, very conscious about it. They will soon or later refused to be continually robbed by US establishment, since they can rob own citizens by themselves!
6. This will cause a forced interruption of the present monetary system - i.e. monetary system collapse!
7. As consequence it will lead to increase of social strain in each part of the Globe... With other words - the Anarchy.
8. As way to "rescue" citizens of the increased Anarchy - the different state establishments on the Globe will implement the "special rules" (martial law) - i.e. Totalitarism.
It sounds unbelievable, but all of this points are explained in Orwells 1984, even if he wrote more about time after "special rules" - i.e. Big Brother time.
Unfortunately, it looks that for future "understandings" more studies of Balkan wars will be of help.
Those events were - quite similar- but in very little scale.
