12 July 2010

The Impending Fall of America: Is it All Obama's (De)Fault?

When governments default on their debts, deep international economic depressions can follow. This is particularly true when the defaulting power is also a world hegemon and superpower -- such as the United States. With talk about sovereign default growing louder in Europe, what are the odds that the US itself is headed toward default on its sovereign bond debts?
Calculated Risk

We seem to be entering an era of massively accelerating sovereign debt. From Japan to Greece to Argentina to Italy, governments are flirting with debt disaster. Under President Obama, the US itself appears to be following an irrevocable path to default -- it is only a question of when, not if.
The underlying causes of default (such as rises in interest rates, wars, commodity price collapses, and simply borrowing too much money) have been diagnosed for many episodes. Proximate to the default, any of the following six financial changes might occur:

1. Government revenues fall far below history or forecast;
2. Expenses aside from debt service rise far above history or forecast;
3. Interest rates rise substantially; due to inflation, credit spreads, illiquidity, or other causes
4. Demand for bonds suddenly drops or disappears (a sudden stop);
5. Exchange rates move, making payments on foreign denominated bonds much more expensive (currency risk), and,
6. A government simply decides not to pay, even though it has the capacity to pay (repudiation). _CalculatedRisk

Mr. Obama has squandered his early years of goodwill with powerful interests -- both domestic and foreign. Obama Pelosi projects a vision of economic decline and ruin as far as the eye can see.
This past week saw a ’see-change’ at the 2010 Aspen Ideas Festival. Movers, shakers and innovators of American businesses met to discuss the state of affairs. One thing became quite clear during the course of many speakers and seminars. The Obama Administration has disappointed America’s business leaders. They see the Obama White House as hostile to business and view Obama was incompetent on economic issues.

Two of the most harshest speeches came from U.S. News & World Report owner, Mort Zuckerman and Harvard history professor, Niall Ferguson (see video below). Zuckerman said of the Obama Administration that there is “a hostility to the very kind of culture that I think has made America the great country that it is and was, particularly given the energy that the business world gives to the world economy.” He also said “we really have, I think, some of the worst public policies in place today that in my judgment go directly against the long-term interests of the country.”

Ferguson goes one step further. He warns that a total collapse can happen much faster than anyone realizes. Niall Ferguson points out that the notion that civilizations and empires take long periods of time, even centuries in the case of Rome, is wrong. He argues that Rome really collapsed quickly, in one generation. He predicts that American will default due to the fiscal irresponsibility practiced in Washington. _RightPundits

Very dark days lie ahead for America unless a drastic and radical change in direction is initiated -- and it must come from within the US itself. If the radical change comes as a result of an upheaval in the sovereign bond market, it will be too late to prevent massive hardship and pain.
The infrastructure of this nation has been badly injured. Manufacturing jobs have been reduced by more than 9 million since the start of the decade. Small and mid-sized businesses struggle to access the necessary working capital to survive. Healing the plague upon the nation will begin with facing and addressing the truth. We need an antidote to end the plague of joblessness and that solution rests with helping America’s struggling small and mid-sized businesses. I hope Washington will hear our call. America’s future depends on it. _LynnTilton

It has grown obvious to all but the dullest dullards that the US is on a fiscal trajectory to disaster.

Al Fin once believed -- like Niall Ferguson (PDF)-- that the massive increase in entitlements plus interest on national debt, would be the downfall of the US economy. But now, Al Fin economists do not think the US will survive long enough for that particular disaster to fall (sometime in the next 2 decades).

Under the current regime, the US has chosen to accelerate its economic stresses exponentially and at warp speed. With a seemingly intentional destruction of private sector incentives to produce wealth and jobs, plus a radical growth in government pension obligations at all levels, plus an uncanny acceleration of government power and resources into the hands of special interests bordering on criminal organisations -- the US is unlikely to survive long enough for Social Security, Medicare, Obamacare, and the interest on the debt to bring it down.

No, it looks as if Obama Pelosi means to make the US into a third world country, and well before 2030.

No one can tell Obama where he has gone wrong, not even his closest keepers and handlers. But each person can make the critical choices for himself and his family -- if he wants to be as prepared for what is coming as possible.

There is no corner of the world that will be completely safe from a cascade of sovereign defaults, and the subsequent economic hardship and violence which will follow in its footsteps. But some places will be safer than others. You need to learn to read between the lines. That is where you will find the closest approximations to the truth.

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Blogger Bruce Hall said...

This financial mess will have one of several outcomes:

1. U.S. moves to an economy like Greece and collapses.

2. U.S. prints money at an accelerated pace and allows inflation to "wipe out" debt creating economic collapse.

3. The Democrats are voted out of office, states nullify federal programs, and a conservative Congress repeals all of Obama's new agencies and programs while reinstating the Bush tax cuts... resulting in large increases in Federal government employee layoffs.

Monday, 12 July, 2010  
Anonymous Anonymous said...

I doubt that the Republicans have enough economically literate members to actually reverse anything but will simply turn the economic policy ship of state perpendicular to the flow taking it over the falls. It will give us a bit more time to watch things unfold.

Meanwhile, the "dullest dullards", and the vast masses who get their news and opinions handed directly from those dullards via their media will begin to panic and demand that the process be taken to its "logical" {snicker} conclusion. If foreign creditors will not willingly continue to supplement the diet of the nation states and piracy and predation can only go so far, the reach of the nation states must be extended to force them to lend. Something of the nature of the USSR but on the scale of the UN will be demanded. It will be a disaster but give the elite classes a little more time in power. I actually hope that civilization collapses before the project can be completed but who can say.

Monday, 12 July, 2010  
Blogger Hell_Is_Like_Newark said...

I am hoping for #3. In the end though, there is going to have to be some form of default when it comes to the pension (local, state, and federal) and insurance obligations.

Retirement age will have to be raised to 72.
SS benefits will need to be frozen / cut and means tested.
Medicare will have to be phased out. Existing elderly already in the program will have to be given vouchers. They run out.. well.. hope your kids can help you out.

Monday, 12 July, 2010  
Blogger Richard Morchoe said...

If we don't bring home the troops, ain't gonna matter.

Tuesday, 13 July, 2010  
Blogger al fin said...

Bruce: It is good that you typed "conservative" rather than "Republican", since the two are not congruent.

Baron: Yes, it is true that much of the destruction of the Obama Pelosi way is now entrenched within the structure of government. Most will not be reversed, because it has burrowed in too deeply.

HILN: True, the pension and benefit obligations in government at all levels have to be cut deeply or nothing else matters.

Joe: The troops certainly need to come home, since we do not want them stuck overseas when the Obama Pelosi collapse of the US happens. Shades of Dunkirk and Khe Sanh.

But instead of the dimwitted withdrawal that many people promote, we need to design an intelligent withdrawal that makes sure the resulting power vacuum does not follow the withdrawing troops to our borders.

Tuesday, 13 July, 2010  

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