posted on Dec, 26 2012 @ 04:38 PM
The problem is not the lending that is now. Because both neo-classical as well as Keynsian economic models point out that you can't starve yourself
out of a depression. There has to be stimulus. That the republicans is trying to block the economy for every time it goes after the fiscal cliff, is
counter-intuitive. Every theory in the book as well as every part of history shows that this move is just not going to be positive for the economy. If
the Republicans really believe that they have a new economic theory that contradicts everything that is known, or if they are just playing games with
the people of America so they can crash the economy to win the next election, is a matter that can be debated. The problem is the lending done by USA
when there were good times. Some of those money went into wars, other went into systems that looks a lot like corruption.
But, the really bad news is that USA has a really bad problem ahead of itself. There might be a crash in the bound-market. There are three reasons for
this : The first would be the downgrade. When I say the downgrade, I mean both the one that transpired as well as future ones due to a dead-locked
congress. Then, there is the interest-levels. Increasing the interest-levels could be catastrophic for the economy. So, nobody dares to make it
higher. That's why they are too low now, there is much growth in emerging markets that can be more lucrative for investors to participate in.
The third factor will be the dollar-volume. The financial war that has gone on with downgrading the euro has made EU aware that there are forces that
deal with dollars that want to ruin their markets. That UK has become an outsider in EU is a part of a conflict with two sides. The public is aware of
the gross inefficiency in EU. But, there is also legitimate fear in the financial markets that EU will act against those financial markets who serve
USA more than EU. There might be heavier regulation on financial markets to avoid these kinds of things in the future. There is also agreement in BRIC
to shun the dollar. And, this is not just for the parties in the alliance, but also for those outside. Also, the petro-dollar didn't hold. This is
the final nail in the coffin for the US dollar. Much of the oil won't be traded in dollars. Also, oil is not the only kid in the block anymore.
Natural gas also plays a part. Those won't be traded in dollars. The bond-markets for US-treasuries will soon realize this. When it does, a crash
The fiscal cliff is nothing compared to the bond-crash. I don't think the dollar will be scrapped, but it will become a part of a basket of
currencies. When this happens, USA will have to get a more fiscally responsible politic when they take up debt. Problem is that USA will probably cut
in the basic safety net of its citizens instead of in its military spending. That will lead to a spiral of more social unrest, that leads to more
spending in law-enforcement and military. This social unrest might be enough to prevent further growth in USA in the foreseeable future.