Bayou Renaissance Man, one of my every day reads, has done some very good work on the economic big picture lately. This piece talks about some of the very large bombs that are likely to drop soon.
and there's a lot more. You should RTWT.
- If the Euro tanks (as appears increasingly likely), the economy of the European Union will go to hell in a handbasket for several months at least, while the various banksters and politicians involved try to salvage the shattered remnants and glue the pieces together in some sort of new structure.
- That means that everyone who exports goods to Europe (primarily China and other Far Eastern nations, but also including some very large US corporations - for example, Boeing) is suddenly faced with the loss of a major market. Their companies can no longer sell their goods into that market, which means there's a massive oversupply of them. They've already had to face a considerable reduction in demand from the USA, too. They'll have to eat even more losses, lay off workers by the hundreds of thousands . . . hel-loooo, economic disruption!
- Until recently, China's money has been keeping our economy afloat. They own trillions of dollars in US bonds and other securities. If their economy tanks due to a reduction in demand from the USA and Europe (the first signs of economic problems are already visible there), they're going to have to redirect all their reserves into keeping their own country afloat . . . which means they'll dump US debt for pennies on the dollar, in a desperate attempt to get as much liquidity as they can to preserve the Communist Party government from the wrath of its citizens.
Several writers have scaled the US budgetary problems down to a more comfortable size ("a billion here, a billion there, pretty soon it adds up to real money" - Everett Dirksen, US Senator, 1960s) and Peter adds this from National Review Online:
Let’s remove 8 zeros and pretend it’s a household budget:How long do you think such a household budget would exist without a creditor demanding money or cutting off the credit line? Any doubt S&P was wrong to downgrade our credit rating? The deficit doesn't matter, because we can print more - as the Keynesians in the central banks seem to think? If so, prepare to pay a million dollars for your McWendyBurger.
Annual family income: $21,700
Money the family spent: $38,200
New debt on the credit card: $16,500
Outstanding balance on the credit card: $142,710
Budget cuts: $385
As Denninger says, Welcome to the Collapse of 2011. For various reasons that Karl covers, this one figures to be worse than the crash of '08. Markets are re-valuing everything, and they're trying to figure out what is real. This could take a while and be extraordinarily painful.