My general estimates on the economic future now gets gloomier each day. That may be the consequence of a severe cold I am working through or the reason for it. There is need for severe triage measures to be taken. Instead billion dollar band aids are applied to the bleeding arteries of Wall Street.
It seems I am not the only one to see problems in that.
Sharon recently pointed to GEAB as does Sustain26 in comments. That European prediction service now sees a U.S. default on its debt in the summer of 2009. That is a frightening possibility. I am not sure yet what the chances for that are, but they are now certainly quite above zero. What would be the consequences of a U.S. default on its international debt?
GAEB also points out that U.S. pension plans, which have been based on stock investments, are likely up in smoke. Something that is already assured and that U.S. media have yet to catch on to.
Maybe it is lunatic to think of a U.S. default, but here is a paragraph from the Wikipedia entry on course of events of the Russian financial crisis in 1998 edited to fit today’s situation:
Prior to the culmination of the economic crisis, the [Treasury] bonds issuance policy was described as similar to a pyramid scheme or Ponzi scheme [..], with the interest on matured obligations being paid off using the proceeds of newly issued obligations.
[…]
Declining productivity, an artificially high [..] exchange rate between the [dollar] and foreign currencies to avoid public turmoil, and a chronic fiscal deficit were the background to the meltdown. The economic cost of the [..] war[s] was also a cause of the crisis. In the first half of [2005], the [U.S.] economy showed some signs of improvement. However, soon after this, the problems began to gradually intensify. Two external shocks, the [mortgage crisis] and the [increase in oil prices], also impacted [U.S.] reserves.
After the breakdown Russian retirees had to sell their last shirt to survive. Many didn’t.
While Roubini still foresees the biggest decline since the Great Depression, other are as gloomy as I am and think that things may get worse than that.
At TomDispatch Mike Davis writes:
[L]ike the Grand Canyon’s first explorers, we are looking into an unprecedented abyss of economic and social turmoil that confounds our previous perceptions of historical risk. Our vertigo is intensified by our ignorance of the depth of the crisis or any sense of how far we might ultimately fall.
He mentions one of my favorite indicators for the U.S. decline:
We are seeing the consequences of a perverse restructuring that began with the presidency of Ronald Reagan and which has inverted the national income shares of manufacturing (21% in 1980; 12% in 2005) and those of financial services (15% in 1980; 21% in 2005).
Tony Karon, the Rootless Cosmopolitan, builds on the above in an excellent piece about the depression he sees coming and remarks:
Restoring confidence in the credit system may
prevent a cataclysmic meltdown in the U.S. economy, but it won’t fix
the long-term decline based on fundamental ailments that the
bubble-driven stock market and real estate booms of the past decade
have simply deferred. Instead of manically watching the Dow yo-yo from
day to day, we should simply recognize that it has been vastly
overvalued for some time. Until such time as America’s economy (the
real economy, not the fetish market of financial services) has been
restored to some semblance of health — a generational project,
unfortunately, given the devastation wrought by a generation of
Reaganomics and, it must be said, by its “New Democrat” imitators — any
dramatic recovery in the Dow will be brittle, based on false confidence
or some new “bubble.”
…
To put this more bluntly, fixing
America’s economy will require not only jettisoning the Reagan dogma of
deregulation, shrinking government, and tax cuts as the cornucopia of
economic growth, but also the Clinton legacy that turned the Democratic
Party into as much of a friend to Wall Street as the Republicans had
traditionally been. Wall Street is not the economy, and
the last two decades have shown that the stock market can be hale and
hearty even when the economy is being steadily denuded. It’s on fixing
the real economy that voters should be forcing politicians to focus.
Lastly even the Wall Street Journal gets a bit gloomy as it now reports on the decline of the empire:
Mr.
Fingar, the intelligence analyst, said in his speech that the post-Cold
War period of overwhelming U.S. dominance was "anomalous." America’s
elevated status on the military, political, economic and possibly
cultural fronts "will erode at an accelerating pace, with the partial
exception of the military," he said.
…
Many nations, from Japan
to Israel to European allies, continue to rely on Washington’s power to
guarantee regional stability. Asked Wednesday night if the U.S. was in
decline, Defense Secretary Robert Gates responded after a recent tour
of allied nations: "No. … Every one of the countries wants to have
better relations with the United States. They still see the country as
the last, best hope."
If the U.S. defaults, will that still be the case?