November 07, 2012
I had a hard time sleeping last night. I was full of fear. There's a catastrophe waiting for my country, a precipice over which it may fall. And if that happens, it won't be recognizeable any longer, for the next twenty years or more.
I'm not talking about a liberal Supreme Court. I'm not talking about automatic tax increases on Jan 1, nor about sequester. This precipice is less obvious, yet far more dangerous.
I think the dollar is going to crash.
There's a story told about a man who fell out of a window on top of a skyscraper. As he passed the 20th floor he was heard to mutter, "Well, I'm OK so far." This country is falling, but hasn't hit the ground yet. When it does, things get very ugly, very fast.
The problem is the deficit. Three kinds of deficits, in fact. There's our cumulative national debt. No nation in history has ever owed $16 trillion. The second is the budget deficit, which has been over $1 trillion per year for the last four years. The third is our trade deficit.
The only reason that debt service on that $16 trillion hasn't destroyed us already is that the Fed is holding interest rates down. The reason the annual deficit hasn't destroyed us yet is that the Fed is "running the printing presses" (only they call it "quantitative easing") to cover it. But neither of those is sustainable in the long run. The ground is still waiting for us, and we'll know we've hit it when a T-bill auction ends up with a lot higher interest rate than we've been paying so far.
It'll be a cascading failure, once it begins. When T-bill interest rates begin to rise, confidence will begin to fail. The rise will accelerate as bond purchasers begin to price in increasing degrees of risk.
And eventually this explosion of money is going to lead to inflation. In fact, it already has; just go to a grocery store some time and look at the prices.
Which brings us to the third deficit: trade. The dollar is the de-facto world currency. Oil is priced and bought in dollars, and that's not the only thing that is. But if confidence in the dollar begins to decline, and increasing suspicion that the US will devalue it (either deliberately or inadvertantly) then willingness of others to accept dollars will decline and that will, in fact, result in a drop in the value of the dollar, reflected in changing exchange rates.
All of these things will feed back on themselves and each other, and it will be an accelerating failure. Once something like this happens, it's almost impossible to stop. I don't anticipate Weimar Republic (or Zimbabwe) levels of inflation, but I won't be at all suprised if it hits 20% per year. I won't be surprised if it's a lot higher than that.
And once that happens, the dollar will cease to be the international currency. Meanwhile, back at home, inflation will have all kinds of other nasty side effects.
Now it is sometimes argued that devaluation also leads to increased exports as your goods become more competitively priced. And there will be some of that. But the problem is that inflation in the domestic market will also cause the price of those goods to rise (priced in dollars). It'll be a wash, or even worse.
The result is a depression, with very high unemployment and general economic stagnation. And if the US goes into a depression, the rest of the world will, too. It's going to be as bad as the 1930's.
And do you remember what happened just after the 1930's?
This kind of economic catastrophe doesn't invariably lead to war, but it does tend to cause revolutions, and revolutions often in turn lead to war. I don't anticipate a revolution in the US itself, though I do expect rioting and other forms of civil unrest. But there are other places where revolution is not beyond the bounds of possibility -- like, for instance, Mexico. Or Argentina. Or Greece.
(UPDATE: Or China. If the American economy goes into the toilet, China can't avoid joining us, and that could lead to a revolution.)
And all of this is going to happen soon unless we get our stuff together immediately. With Obama (the poster child for the Dunning-Kruger effect) as our leader, and him surrounded by sycophants who are unwilling to tell him that he's full of shit, that kind of act-getting-together is pretty much inconceivable. (And indeed that word means what I think it means. And I don't expect the inquisition, either.)
So I had a hard time sleeping last night. I feel a bit better today, but not whole lots better. I only see one slight ray of hope: the Republicans retained control of the House, and it seems that even as he was running for VP, Paul Ryan also ran for his House seat, and won it. So there is at least one part of our government which understands the threat that faces us, and knows how to avert the catastrophe.
But they're outnumbered, two to one, and the Democrats seem to want to destroy the US as we know it now. The catastrophe I see coming appears to be a feature, not a bug, from their point of view. That scares me most of all.
They think that Americans buy too much, own too much, use too much. They want prices to rise relative to wages so that we can't afford as much. They want to make energy expensive so that we won't use as much. Anything that they can't make expensive they'll try to ban outright, like coal.
They've already done some of that, and they want to do more. And they're willing to lie and cheat and steal to make it happen.
I think they'll succeed. But I don't think they truly understand the consequences. I don't think they know just how awful it will become.
So I'm still not feeling very good.
UPDATE: Patterico linked to this.
UPDATE: Suburban Banshee linked to this.
UPDATE: The exchange rate on the dollar has dropped by more than 1 yen since yesterday.
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At Chizumatic, we take pride in being incomplete, incorrect, inconsistent, and unfair. We do all of them deliberately.
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