Yesterday, John at Improved Clinch had a link to a post by Vin Suprynowicz "Do You Really Believe They're Going to Pay Off This Debt?". If you've been around here, you might know that I believe "things that can't go on, won't go on" and we can't possibly pay the debt off. Vin believes they will default on the dollar, declaring all the bonds worthless. I tend to think they plan to inflate our way out of the debt. I commented,
I don’t think they intend to pay off the debt in any real sense. Ben Bernanke once said, “people know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation.” I think they may intend a period of hyperinflation to devalue the currency.That first Bernanke quote is originally here and the second is here. In the article "50 Statistics About the US Economy That Are Almost Too Crazy To Believe", the authors say the US next year is going to issue almost as much debt as the rest of the world combined. A couple of months ago, in one of this blog's very first posts, I commented about that, saying
Maybe this creates the atmosphere that enables a default, and maybe they just print the money owed to China/whomever on a roll of Charmin (same difference).
I came across a quote from Helicopter Ben the other day that reveals more insight into his “thought” processes. In 1999, he wrote: “A central bank can… extend loans to depositories, other financial intermediaries, or firms and households…. ” Households?? If the Fed directly depositing money into everyone’s accounts isn’t inflating and devaluing the currency, what is?
The guy has not had an original thought since his graduate school work on the depression, which means even more years since he had a correct original thought.
First off, think of how much money that is. With a deficit of 1.4 trillion year to date (again, ATTOTW), we have to sell around 280 billion in bonds per month. Who has the money to soak up that much in bonds? According to the 2009 CIA World Factbook, that’s more than the annual GDP of economies smaller than the 32nd largest economy of the world (South Africa). See: this list on Wikipedia which is pretty much the only kind of facts I trust to the Wikipedia. So who can continue to buy up that kind of debt? Things that can’t go on, won’t go on.
In just the time since the end of February, when I wrote that, the projected deficit has increased to 1.6 Trillion. If we have to issue more bonds than a country's entire GDP, we can't count on selling them many bonds. It leaves us with the world's largest economies as our only realistic customers. That's the EU, China, Japan, Canada, India and a few others. In case you missed it, they all have plenty of problems of their own.
Events may keep all those nice plans of mice and men from going forward, though. The middle east appears to be lurching toward open warfare, possibly between Turkey, Iran and Israel. Israel is frequently quoted as being a nuclear power, although I believe they have never confirmed that. Wikipedia says the Turkish air force has 40 (presumably) US B61 nuclear bombs. Iran, of course, has been working on attaining nuclear weapons for some time, and I suspect they may well have some number of them; either bought or made in country. The world's first nuclear war? If a country did not intend to use nuclear weapons, but had nukes used against them, would they then use their nuclear weapons? What if their entire country was on the verge of destruction or their entire people on the verge of annihilation, would they use them then?
Turkey has been moving away from US interests for some time - remember how in 2003 they refused to cooperate with the start of the Iraq war? - joining Iran should cause us to drop relations with them, and could conceivably cause the disintegration of NATO. Not that burying NATO is necessarily a Bad Thing.
According to this article in the Guardian, the next big attempt to run the blockade could be soon, but probably not later than September.
Israel's no-compromise attitude to aid convoys could be tested again after two Lebanese organisations pledged to send boats to Gaza in the next few days. Reporters Without Borders is attempting to assemble 25 European activists and 50 journalists for a boat leaving Beirut. The Free Palestine Movement is planning a similar attempt.Israel is close enough to Turkey that it won't take long for things to happen once the ships are sailing.
George Galloway, the founder of Viva Palestina, announced in London that two simultaneous convoys "one by land via Egypt and the other by sea" would set out in September to break the Gaza blockade. The sea convoy of up to 60 ships will travel around the Mediterranean gathering ships, cargo and volunteers.
The Strategy Page posts this article that offers other viewpoints that moderate the what I've quoted here. Important points are that Turkey and Iran have never been allies historically, and are probably just joining together for bluster.
Turkey and Iran have offered to provide warships to escort another aid convoy for Gaza. This is pure posturing, as neither Turkey nor Iran could carry that out in the face of Israeli naval and air power. Moreover, the Turkish military is much more pro-Israel than the current Islamic government (which is using all this to divert attention from economic and corruption problems.)...
Iran, which leads the effort to destroy Israel (and makes frequent public announcements to that fact) sees the May 30th incident off Gaza as an excellent diversion from efforts to move more missiles into Lebanon (for Hezbollah to use against Israel), and gather more European and Arab support to break the blockade of Gaza. Most Arab states fear Iran (historically, a real threat) more than Israel (mainly a threat to Arab pride). But pride and reality don't get along in this part of the world, and currently pride is winning. That will quickly change as Iran makes another move against an Arab state, something that is happening with increasing frequency these days....
Iran is also making nice with Turkey. This, historically, is an unnatural act. The Turks and Iranians have been arch-foes for over a thousand years. They have never made peace before, just ceasefires. The current phony peace ignores Iranian calls for Iran to replace Saudi Arabia as the guardian of Mecca and Medina, and for Iran to establish a new Caliphate (Turkey had held that largely empty title for centuries, but gave it up in 1924). The only thing the Turks and Iranians have in common is the rough way they treat their Kurdish minorities. Iran has a large (25 percent) Turkic minority, but these Azeris tend to be anti-Turkey and very Shia.
What's going to happen? It's hard to say. I think it comes down to the individuals in all of the command seats at the critical times, as it has so many times in the past.
It is frequently said that the President of the United States is the leader of the free world. Right now there is no leadership; there is no leader of the free world. Indeed, the "free" world itself may be on the brink of vanishing.