5 days and counting
The world economy is like a chess game, but not one between two players who take turnabout. Each piece on the board has its own mind, plays its own game, may move when it wants, and the game progresses in a sometimes unpredictable manner.
The five days referred to above is when the US could default on the world economy. We’ve been playing this game for a while now but this time is different. The US treasury has exhausted its extraordinary options and the Fed had indicated it would stop printing money but has been forced into an embarrassing about face.
Is this simply a bunch of intransigent politicians blissfully inconsiderate of the global economy? Is it high-stakes brinkmanship? Is this the time we must come face to face with the frightening inevitable?
The other chess pieces are paying close attention and there is a rising panic amongst major stakeholders.
China holds a trillion dollars in US debt and Japan has its own problems not the least of which is the failure to control Fukushima, the Japanese prime minister announcing this week;
‘We are wide open to receive the most advanced knowledge from overseas to contain the problem,’ he said.
While the rest of the world can do without a US default you can only elongate an economy so far. That said in other ways; you can only inflate an economy so much or allow the gap between rich and poor to become so great that too many people no longer have the ability to participate in that economy.
The US ecomony is at tipping point; it cannot continue to print money. The reduction in its dollar has given it a competitive parity with the rest of the world and at great expense to other economies. What has been the benchmark currency of the world is now under threat which in some respects is natural as its number one ranking equally is under threat.
This scrap between the Republican Tea Party faction and the Obama administration (which imposes the risk of another global meltdown) is not just a fight over the Obama-care health policy, it is recognition of the delicate position we have reached and the differences of opinion on how financial chaos might be avoided just a little bit longer.
The DHS (Department of Homeland Security) also recognises the significant level of seriousness they face. Their recent acquisition of 1.6 billion rounds of ammunition and military equipment isn’t to repel an anticipated invasion from the Chinese army.
For the first time since the American Civil War the US may soon be shooting its own people in order to defeat civil unrest. Yes it can happen in America just as it has happened it the Middle East. If the circumstances exist the population will riot; they want at the very least, their daily bread.
The US is exhausting its military options; those that we have watched them engage in over the last two decades since the first Iraq invasion have not relieved their economic vulnerability. They have lost the currency battle with China.
The next five days may appear to amount to nothing, should there be a last minute agreement to raise the US debt ceiling, but make no mistake, this isn’t going away.
Take note men, when the time comes, all of us, even in New Zealand will have to deal with the consequences of this.