The USA goes Greek

       No we aren't joining a fraternity (we certainly are in a bad way, and it is sure to get far worse, but we haven't become so tragic as to do that) we are joining a club that only requires having a debt in excess of your GDP. At the rate the Treasury is pissing through money we should be crossing that line in a very short time indeed. We are just about $145 billion dollars short of $15 trillion in the hole, almost exactly  99% of our GDP, and let us be honest here, $145 billion just doesn't go very far in D.C. these days. In fact, at the going rate, it will last just under three DAYS.

     You may say that there are some countries that already are there, indeed some (like Japan) have been there for ages, but the crucial point is that this is the USA, that happy land that is the source of the world's reserve currency, and the largest economy on the planet. Greece had a 2010 GDP of  $305,415 millions, the USA $14,526,550 millions. Frankly Greece wouldn't matter at all if the Banksters hadn't gone bonkers buying crappy Greek paper (no slight to the Greeks but your bonds aren't even usable as toilet paper). In fact the USA is bigger than the next five largest economies combined, so when our money becomes worthless there are going to be a LOT of problems. There is no escape valve, no "leaving the Euro" for us, or any other nation on the planet, the dollar goes bust and the world hits the crapper.


     The dollar Reserve status is the oil of international trade, deals are made in dollars because it is separate from the various national currencies and is a reference point that many can agree upon. A dollar collapse would throw the very means of commerce into utter chaos, this makes the concern of the BRICs all the more understandable as, for all intents and purposes, their commerce is conducted in dollars. An international situation wherein a exchange matrix between the hundreds of national currencies can be related to one another without a dollar as a benchmark would be difficult to construct, particularly if it had to be done in a hurry (we all know how well politicians work in a crisis).

      China's large and relentless purchases of gold is more readily understandable when viewed through this lens. Another thing to consider is how fast this could occur, fiat only works when people believe in the "full faith and credit" nonsense that is the dollar's only backing. In 1929 markets jumped out of the control of the big-wigs and began a meltdown that went on week after terrifying week. They were working with pen and paper back then; these days HFT programs can move at a dizzying speed (at times exceeding even the speed of light ) and move trillions in nanoseconds. The opportunity for wealth destruction is awe inspiring when you stop to think about it. All it would take is an event, any event, that shook the faith of a significant holder of dollars or T-Bills, the sell orders go out, the algos pick up the ripple in the Force and jump in with more sell orders and (literally faster than you can think it) the "full faith" bit of that famous guarantee is gone. Gone.

     It is easier to lose someones trust than gain it, think of the position we would be in if we lost everybody's faith, everybody's, on the same day, at nearly the same instant. Suddenly, world-wide, people would be asking themselves if any fiat money was worthy of trust, asking themselves exactly what was worthy of their trust. Conducting business with a counterparty on the other side of the world would become difficult, to put it mildly. Commodities, or a basket of them, would probably serve as a benchmark but would be nearly impossible to manage without constant tinkering. The shutdown in commerce would (will) leave the world in chaos and find many starving and /or freezing while the wise-men and political animals sort things out. War becomes a viable national alternative to collapse and starving in the dark.

     Think briefly what we must look like to other nations, how frightening it must be to try to plan for the future when you cannot control the very means of commerce that feeds your people, that conveys your products to the world markets and brings to you the output of other nations. You would be the puppet of the careless buffoons that control the dollar. Too much and you are swamped with inflation, too little and your trading partners sink into deflation, destroying you economy. It must be sort like being locked in a room with a drunken five-year-old who has a loaded pistol; you aren't sure what is going to happen but the odds are long that it won't be good.


    Wishing to end on a cheery note; do keep in mind that this is just the "on the book" debt, not the war-financing, or the unfunded liabilities that are left as orphaned bastards in this accounting of the nation's financing.


     Snatched from the Government website, notice that the Statutory Debt Limit is larger than last year's GDP (and you can be your ass that this years GDP won't be bigger):