by ReverseEngineer » Tue 25 Nov 2008, 02:52:49
I am bumping this thread back up because of some discussions going on in other threads regarding the outcomes of deflation, inflation or monetary collapse, as the case may be here in the coming 3 month-4 year time period. The purpose here is to step out of my typical Sooper Doomer spin to analyze some possibilities that are not quite so spectacularly horrific as marauding Zombies, debt prisoners eating Cockroaches and an economy based on Prostitution. Thank you EU for contributing those last two entertaining scenarios to the Peak Oil zeitgeist. LOL.
Anyhow, when asked by some who aren't so familiar with deflationary and inflationary outcomes as to what to expect here in the US over the coming months/years, our Pundits here often respond with "think Argentina" or "think Iceland". Although its certainly conceivable we suffer a similar downspin, right now I don't think its likely to play out in quite the same way or in the same time frame mainly. I'll try to explain my current thinking on this, feel free to shoot holes in it if you like. It puts me at odds with some of my closest analytical matches here, Cid Yama and ShortonOil, so I'll be interested especially to see how they dissect this scenario and analysis.
The US differs from Iceland and Argentina in several fundamental ways. First off is size and natural resources. The US is much larger than either of those two countries, with the definite ability to feed itself even in the scenario of complete monetary collapse. There is sufficient oil coming out of just our own remaining GOM rigs and the North Slope to if push came to shove could be directed solely at the food production and distribution industry for at least a couple of year. Meanwhile, as the rest of the world slides into econmic chaos as great as our own, we can still negotiate for direct trades of food surplus for oil, particularly from the Saudis who basically are in our pocket and have been for years. The Saudis are going to starve, and fast if they cannot trade their oil with a major food producer. Neither Argentina or Iceland fits that description.
Second, the dollar is and remains for as long as it lasts the World's Reserve Currency. Neither Iceland or Argentina's currency fits that description either. Because of this aspect of the Dollar, when the dollar tanks, so in domino fashion will all the rest of the fiat currencies. There is a big difference between when you are a small player in the game and are pushed out of the game and when the entire game collapses. In the second case, everyone is highly motivated to get a new game started; in the first case, the losers are left to basically twist in the wind.
Finally of course there is the difference of the Military Card, which neither Argentina or Iceland held at all. The US holds the Military card in SPADES, the only other countries that approach this are Russia and China, and they are in the same sewer we are in. It does not behoove any of the 3 majors to go up against each other, but they CAN "divy up" the rest of the world for a time here, in terms of Piracy of the resources of countries in their spheres of influence, which could be negotiated politically. I could easily see Putin, Obama and Wen Jiabow sitting down at a table and Russia being given Iran if he can take it, China being given Nigeria if they can take it, US being given Brazil and Venezuela if we can take them, etc. Fighting against each other is a No Win scenario for all 3 major powers, divying up the weaker nations is not so necessarily no win, though it certainly would not be pretty.
To bring this around to the reason I dropped this in the Solutions thread, one soluton I see coming out of this now is a 3 way breakup to 3 separate currencies, centered around the 3 major powers. The Yuan would form one currency for the Asian world and whatever they get in the divy up around the world. Depending on which way the Europeans go, with Russia (better choice for the europeans IMHO), the Russians would take on the Euro as their currency. If the Europeans Ally with the Americans, the Americans take on the Euro. If they don't, sadly one would have to expect the Amero to come out of this. If the Ruskies don't end up with the Euro, they will have to reinvent the new Ruble.
Time frame would be important here in how fast this could be set up to avoid complete collapse on a social level and devolution to social anarchy. I could see short term as a bridging mechanism Couponing for food being instituted in the US, and also local State issued currencies, or perhaps even Regional Currencies based on the breakdown I gave in the Regions thread.
While certainly there are the typical motivations toward World War here, there is also MAD, there is also the motivating factor of stabilizing your internal economy before you even try to mobilize for a World War. It will be extraordinarily difficult, perhaps even impossible for any of the 3 majors to mobilize up a war machine as long as their economies are in this kind of chaos. It took time for Nazi Germany to move from the disorder of the Weimar Republic to getting its war machine in place to decimate Europe. That also only happenned because Bankers like Prescott Bush funded that machine. The banking system is currently in chaos, and right now there is no way they can get their act together to fund a military machine, heck they cannot even keep themselves floating at the moment. The Ubermeisters themselves need a Reboot before they can try this tactic.
Conclusion here, its not necessarily true that a collapse of the Dollar will mean an immediate descent into a Zombie Wasteland. there are possible mediation schemes, and the resources of the US remain in place despite the failure of the economic system. It would of course take great Leadership to negotiate our way out of the mess without it devolving into a Thermonuclear exchange which inevitably wipes humanity off the face of the Earth. One can only HOPE that Obama has such Leadership skills in him, because he is the one we have put up at the top here, for better of for worse. He can turn out to be a puppet and a nincompoop, that is possible. If he has it in him to step up to the Plate here though, he could be the greatest President of all time.
Only time will tell how it plays out, but IMHO all hope is not lost YET. Its not Bunker Time YET. It ain't OVER til the Fat Lady Sings.
Reverse Engineer
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