We are finally on the edge of financial mutual destruction. If congress fails to address our deficit and debt crisis in a credible way and investors around the world lose faith in Treasuries and the dollar collapses the USA standard of living will be destroyed. American's buying power will be annihilated. Then what?
There's no question that IF this happens the world will be thrust into a great depression! The USA is the biggest customer on the planet and if we stop buying international goods and services from around the world because our dollars are so devalued our pain becomes the pain of the entire world and everyone's economy. Talk about "too big to fail," there isn't any country that could bailout the USA. If our boat sinks we're taking everyone to the bottom with us! But that's a BIG IF!!!!
We've been bad. We spent too much. We're virtually insolvent. But so is Japan, Ireland, the UK, Spain, Portugal, and dozens of other countries! Have you looked at the Debt to GDP ratios in France and Italy? Forget about Belgium, Denmark, Norway, and Switzerland! Euro zone Debt to GDP is higher than the USA! You have to wonder who's lending everyone the money cause we're all broke.
Sure there are some countries with a great debt to GDP ratio. Those are the countries supplying the world with natural resources or who have exploited their workers and kept their vast populations living in poverty. (Can you guess the names of these countries?) They have also been huge buyers of USA treasuries. Who's better off? Well, let's see what happens when we stop buying their stuff and their debt, valued in dollars, is nearly worthless as well!!
The bottom line is that if America goes bust we're taking all of these countries with us. So where would you like to be living the day America goes broke? If you ask me, I'd rather be living in America when it goes bust than in China!! Somehow the image of civil unrest in America seems less scary to me. And what will Saudi Arabia do with all that oil if American's start burning more gas and coal and conserving energy because we can't afford to buy OPEC oil?
What's the value of a dollar, or any currency for that matter? None of it (currency) is backed by anything more than faith & confidence in the financial system of the Nation that prints it. It's only worth anything if you believe it's worth anything! So, do you believe in the "worth" of America? Pick a country, any country! What's it worth? Seriously, what is the worth of a country? When I think about it, if you ask me, America is still very wealthy! I could give you a long list of reasons why but that's not the point of this blog post.
We are going go the edge of the cliff here. In financial terms, America and a slew of other countries are for all intensive purposes insolvent. If America goes over the cliff the rope tied to most of the developed world will take them over the cliff with us. It will be mutual financial destruction! Nobody wants that, so we all need to step away from the edge. The problem as I see it is that no body has figured how to "step back" in a way which will enable people around the world to believe once again in the value of the USA dollar or the Euro. But I am pretty much sure that we will find a way for the same reason that nuclear war has not happened yet. Most people and most countries are not suicidal.
It should be very interesting to listen to how Fed Chairman Bernanke, ECB President Trichet and China's Chairmen Hu all talk us off the ledge. Listen up people.
