Asking the million dollar questions...

[UnderseaLcpl]

Originally Posted by Skybird

Enjoy the laughter as long as it still could last. The fiscal structure and total debts level expressed in % of the GDP between the US and Greece is very similiar. If you read the small signs, you see that the wolfpack of speculators is already flocking together to mount the allout attack on the US as well. Even before Portugal, Spain, Italy or France, the UK's and the US's financial situation is much worse and far more threatening. The US plays on the same level - if not even a worse - like Greece. Economists like Laurence Kotlikoff (Boston university) have shown that the to-be-expected income of the American state in the forseeable future of coming years is 16 times smaller than the spendings. In case of Greece, that factor is 17. Or as Kotlikoff put it in a German interview some days ago: already in the near future the Greeks will be better off than the Americans.

A good analysis Sky, but I don't quite agree. The US does not play on the same level as Greece, and it is highly unlikely that the US will end up on the same level in the near future. In fact, it is likely that the E.U. as a whole demonstrate greater insolvency than the US for at least the next decade.

I have many reasons for this view, but foremost among them is the fact that the dollar is still the world's reserve currency. You need look no further than this matter with E.U. debt to see this. Whenever domestic markets look bad, investors, speculators, and traders alike flock to the dollar and the U.S. as their life raft. The resultant influx of economic activity bouys the dollar and spurs US markets. The domestic market in question then swings wildly downward until a stable level of economic activity is achieved. That is, where the newly devalued currency makes exports from the domestic export surge (often involving a significant number of exports to the US) and the recovery process can begin, only to be sabotaged again by out-of-control borrowing and spending by the state.

The only economy in the world that could really threaten the position of the US is that of China, but China's economy is, ironically, so heavily based on the US (imports, exports, currency holdings) that they are locked into playing second-fiddle for the time being.

The E.U. was never more than a fairly close third, in terms of fiscal viability. It was doomed to failure from the moment it expanded its responsibilities beyond regulating the Euro and brokering free-trade agreements. It simply wasn't yet ready to play on the same field as the US, much less undertake the same reckless spending policies.

That said, you are quite right about the long-term insolvency of the US economy. We may be able to maintain this debt-to-income ratio for far longer than other nations, but it can't last forever. The signs are already evident, as you pointed out. The DOW is set to plunge below the 10,000 watermark again, and God knows when it will manage to recover fully, if ever. We will eventually reach the point where the dollar ceases to be the world's reserve currency, and all nations heavily invested in it will suffer from the collapse. China will likely go down with us. The E.U. may or may not weather the storm, dependant upon how it acts over the next few years. It is all very uncertain.

What is certain is that the global economy is going to have an encounter with the "reset" button, so to speak, and we're going to see a major worldwide economic contraction within the next three or four decades. We've already charted a course that is disturbingly similar to that of the Great Depression; A worldwide contraction of currency supply followed by a decade of stagflation. If the reckless spending of the US government continues unabated, we will see an even more rapid decline as hyperinflation takes hold.

[Wolfehunter]

Originally Posted by UnderseaLcpl

A good analysis Sky, but I don't quite agree. The US does not play on the same level as Greece, and it is highly unlikely that the US will end up on the same level in the near future. In fact, it is likely that the E.U. as a whole demonstrate greater insolvency than the US for at least the next decade.

I have many reasons for this view, but foremost among them is the fact that the dollar is still the world's reserve currency. You need look no further than this matter with E.U. debt to see this. Whenever domestic markets look bad, investors, speculators, and traders alike flock to the dollar and the U.S. as their life raft. The resultant influx of economic activity bouys the dollar and spurs US markets. The domestic market in question then swings wildly downward until a stable level of economic activity is achieved. That is, where the newly devalued currency makes exports from the domestic export surge (often involving a significant number of exports to the US) and the recovery process can begin, only to be sabotaged again by out-of-control borrowing and spending by the state.

The only economy in the world that could really threaten the position of the US is that of China, but China's economy is, ironically, so heavily based on the US (imports, exports, currency holdings) that they are locked into playing second-fiddle for the time being.

The E.U. was never more than a fairly close third, in terms of fiscal viability. It was doomed to failure from the moment it expanded its responsibilities beyond regulating the Euro and brokering free-trade agreements. It simply wasn't yet ready to play on the same field as the US, much less undertake the same reckless spending policies.

That said, you are quite right about the long-term insolvency of the US economy. We may be able to maintain this debt-to-income ratio for far longer than other nations, but it can't last forever. The signs are already evident, as you pointed out. The DOW is set to plunge below the 10,000 watermark again, and God knows when it will manage to recover fully, if ever. We will eventually reach the point where the dollar ceases to be the world's reserve currency, and all nations heavily invested in it will suffer from the collapse. China will likely go down with us. The E.U. may or may not weather the storm, dependant upon how it acts over the next few years. It is all very uncertain.

What is certain is that the global economy is going to have an encounter with the "reset" button, so to speak, and we're going to see a major worldwide economic contraction within the next three or four decades. We've already charted a course that is disturbingly similar to that of the Great Depression; A worldwide contraction of currency supply followed by a decade of stagflation. If the reckless spending of the US government continues unabated, we will see an even more rapid decline as hyperinflation takes hold.

So which nation or peoples will benefit from this doom? Who will take the burden of this? Who will laugh at the rest of us? Somewhere out there someone or peoples are benefiting on the rest of us? No?

[UnderseaLcpl]

Originally Posted by Wolfehunter

So which nation or peoples will benefit from this doom? Who will take the burden of this? Who will laugh at the rest of us? Somewhere out there someone or peoples are benefiting on the rest of us? No?

I don't really see any nation or people benefitting from this situation and I certainly don't see anyone laughing at it. The thing about modern macroeconomics is that when one party loses its share of the pie, someone else doesn't necessarily get a bigger share. Rather, the whole pie gets smaller.

There would undoubtedly be people who could benefit from this situtation - likely the most firmly entrenched interests with the largest capital reserves and real assets. As far as nations go, I think the US would ultimately come out on top (but it won't be easy), but it remains to be seen. We're still a few years away from utter fiscal meltdown, and a lot of things could change in that time.

Originally Posted by Skybird

You will not believe it, Lance.....

Actually, I don't have any difficulty believing any of that. You and I are of common ground on some things, Sky, and the effects of reckless fiscal policy and market bubbles are among those, even if we don't always agree upon who is to blame.

However, I should like to point out that I didn't say that it would be a decade before we would know the outcome for sure. I said it would be at least a decade before the US is more insolvent than the EU. We can discuss this if you wish, but I will warn you that it may be a long discussion.

In all honesty, the ultimate outcome seems fairly apparent to me right now. Looking at the world economy as a whole, and the general response to the current crisis, and the sociopolitical structures of the major players, I'd say that this recession is a prelude to the calm before the storm. What we are seeing now is an unprecedented level of worldwide state measures to "fix" the recession, as well as the associated capital costs, but we aren't really seeing any growth to offset those costs. Most of these measures are based on very shortsighted long-term projections, and others are just outright fantasy.

But where the movement of nations and empires is measured in decades, the movement of the societal engines of commerce and industry is measured in seconds, minutes, days, months, and occassionally, years. As of now, we are still at the point where an influx of currency can generate temporary growth. In true Keynesian fashion, the struggling market is still grasping at the dollars thrown it by the state. There will be brief periods of resurgence, followed by stagnation, followed by a rally or a fall, followed by yet more state moneys. That wild ride will continue until the market starts figuring out that these pieces of paper we use as a medium of exchange are so abundant that they don't really mean much anymore. At that point, we had all best get our muckers on, because we are all going to be knee-deep in $hit.