posted on May, 8 2011 @ 07:40 PM
I was taking my normal, early morning walk with my partner this morning - the Kangaroos were jumping across our path, and the very first hints of
sunrise were escaping over the mountains.
As usual, we were talking about a myriad of topics, until she looks over, and asks, "What would happen if America fell?"
A bit taken aback, I asked her what she meant.
She replied, "If the US fell, what, in your opinion, would happen to the rest of us?"
We talked through it, and I realised that I didn't really have even a basic answer.
I explained that the US debt isn't that bad on a GDP level (Japan's overall debt is twice as large as the US in respect to GDP).
However, the problem with the US is that their debt runs the risk of crashing the entire system - as well as being the largest economy in the world,
it is also the benchmark of the monetary system. The US dollar is the worlds largest reserve currency.
IF the US economy continues to falter, the perception that the US is the "safe haven" will dramatically switch. If this happens (and in truth it is
currently happenning), the US Treasury securities will seem less "appealing" to the rest of the world.
What does this mean?
In simple terms, interest rates will rise, slowing consumption and investment, and ultimately making it harder for the US government to handle it's
The US dollar is slowly crumbling, which is reducing the value of currency reserves (hell, $1 Australian dollar now buys almost $1.10 US).
I would dare say that the US dollar is on the tipping edge of losing it's status as the worlds premier currency - if this happens, living standards
will slide for Americans, and the entire world will see a significant slow down in growth.
Who would take America's place? How long until the Yen is seen as the global leading currency? What impact would this have?
These are the questions no one has the answer to ... what are your thoughts?