posted on Jan, 15 2013 @ 10:04 PM
When looking at the lead up to the last financial crisis, the sub prime house loan situation was well known with many media investigations in the lead
up. The risks of neglecting basic economic responsibility are very clear, it is just a matter of who ends up paying in all the resulting complex and
Now all the issues with the fiscal cliff and debt ceiling problems are getting the media attention as basic economic responsibility is once again lost
with a very reasonable and growing risk of government default. The financial sector is very highly tuned to maximize wealth generation amongst the
usual social risks. When a larger than usual risk emerges, liquidity is quickly diminished and the longer term assets lose value as demand fades,
perceptions alter and priorities change. In a market crash or economic collapse, the status quo is no longer as the organizational structure of the
cash flow is redefined and needs to be rebuilt.
With the Euro built on similar economic foundations as the USD the same risks are present as government debt levels become unmanageable and out of
control. Things do not appear to be as critical with the Euro as it is with the USD, but if one should fall the stress on the other will be immense.
There is no such thing as too big to fail, but the bigger it is the more slowly and forceful it moves. With the governments saving the banks in the
last economic crisis a lot of the pressure has shifted from the private to the public purse. While a lot of effort has gone into fixing up economic
flaws there are still ongoing problems and risks remaining.
The BRIC nations have considered the option of setting up their own central bank with a gold backed currency. If the USD does fail taking down the
Euro, global trade will still continue as these BRIC nations will still be able to trade while the US and Europe sort their mess out. As for how far
and how likely such an option is I am not sure, but there has been many discussions about many options with the direction the global economy is to
Raising the debt ceiling to infinity is another option that has been raised to avoid the current problems and find a solution. This will force the
position of economic growth and like all ponsi schemes, once there are no new takers to the plan it all falls apart. For the US this will be expressed
through the bond market, more bonds will have to be sold as the debt continues to mount. As more bonds enter the market demand fades, eventually there
will not be enough buyers for the bonds needed, so the government defaults and the money moves to other markets as the US is no longer a safe bet.
Then the chain reaction of this very high debt is set off.
Overall all, China is set to be the next global dominant currency in the short to medium term. It does appear and will be good to see it more
inclusive of other currencies in how it approaches the issues of global trade. As for America, does it go out with a bang as its responsibilities
catches up with it or a more gradual slide as it tries to get its responsibilities in order?