Default

Peak oil will spell the long-term death knell for the current definition of modern society.   We still have a few more years of bumbling along the ‘plateau,’ where supply & demand engage in an awkward waltz of sorts, with neither gaining the upper hand.  Eventually, though, supply will start slipping fast enough that new production cannot back-fill the resultant gap.  That’s when the economic vise will really start to tighten… assuming we don’t do something to screw things up before then.

Speaking of which, if you haven’t been paying attention recently, the financial excesses of the last few decades are finally starting to pay negative dividends at home.   Economic forces are playing whack-a-mole with US banks & GSE’s, and it’s getting harder to paper over the gaping holes in our economic fabric.   An article in the Economist has brought up an idea that months ago would have seemed ludicrous: that the USA may default on it’s debt.

The GSEs are not the only liability for the government. IndyMac’s recent collapse is the latest call on the Federal Deposit Insurance Corporation (FDIC). The FDIC has some $53 billion of assets, so it is better funded than most deposit-insurance schemes. But if enough banks got into trouble, the government would be on the hook for any shortfall. The same is true of the Pension Benefit Guaranty Corporation, which insures private sector benefits, but is already $14 billion in deficit.

In the end, the turtle at the bottom of the pile is the American taxpayer. But that suggests that, if Americans are losing money on their houses, pensions or bank accounts, the right answer is to tax them to pay for it. Perhaps it is no surprise that traders in the credit-default swaps market have recently made bets on the unthinkable: that America may default on its debt.

The US Dollar is the world’s reserve currency right now.  Most of the debt floating around the world is denominated in US dollars.  Were the dollar to become essentially worthless,  global fortunes would be wiped out, major economic havoc would take place in all of the world’s national economies, and the cost of all global commodities would skyrocket.

We’re not close to defaulting yet, but the fact that a major economic magazine like the Economist would discuss what previously was an unthinkable act should be a sobering alert to all of us.   We are entering a very dangerous period from an economic standpoint; one that could drastically alter the future for all of us.  Pay attention, folks.

Advertisements

6 Responses to Default

  1. Heather says:

    These are all such important developments, but as I try to apply any potential lessons (or attempt to lessen any impact on my family) we are faced with situations like this: build a new completely energy efficient/independent home (taking out a larger loan to do so) or remaining in our 100+ year old brick house that is an energy hog (and just pay off the remaining of our mortgage) and accept that we will always pay a lot for heat. We already live in the city, telecommute or work within 3 miles of our house, and have begun growing a larger percentage of our food as well as buying from local farms. Peak Oil has been playing a role in almost every decision I make lately.

  2. Bart says:

    Greetings Heather,

    Thanks for your comment. Most Americans are going to have to pay much closer attention to debt management. The cost of financing things will get more expensive… I personally am doing what I can to reduce my debt load. Having bought a house at the top of the market, my largest debt (mortgage) is one I can do little about. Were I able to take out an equity line of credit or something similiar on it now, I don’t think I would.

    As always, your situation is different. The fact that you are aware of the economic forces heading our way will put you ahead of 99% of the rest of the country. Good luck with whatever decision you & your family decide upon.

  3. phædrus says:

    I’m in the same situation as Heather and am taking a fairly similar approach. Taking on more debt right now feels unwise, so the general approach I’m taking is to use any extra money I come up with to tighten up the house a bit – with the old houses, windows seem to be the biggest “bang for the buck” improvement for weatherproofing.

    I’ve got a high efficiency furnace, but I’m pretty concerned about the fact that it runs on natural gas. My biggest fear when looking at where things are going is keeping the place warm, especially if there are employment or pay issues.

    I’m also trying to learn more and more DIY skills. From repairing things to building things to (hopefully) canning food. I figure it can’t hurt and it may well be very important.

    Good luck to all of us.

  4. Jim says:

    @phaedrus:
    Canning food is relatively simple and requires very little outlay of funds. I just started canning myself, first by dropping a couple hundred bucks on a pressure cooker. I’ve learned that there are a lot of things that can be canned in a big pot at 100C (high acid foods, many fruits, and anything pickled), so pressure cooking isn’t absolutely necessary to get started. I’d recommend the Ball Blue Book of Canning, a case of quart jars and lids, and a trip to the farmer’s market on your long bike.

  5. Bart says:

    Canning can be quite economical, and you have greater control over what you’re preserving & therefore what you’re putting into your body. I’ve canned salsa for the last three years running, and I’ve also done a round of jalapeno jelly that was fabulous.

    Boiling water canning is suitable for high-acid foods like tomatoes, peppers, etc. The pressure cooker is more useful for low-acid foods like meats, green vegetables, etc. I have a pressure canner but in all honesty have yet to use the thing. I’ve been entertaining myself too much with tomato-based foods.

    The Ball Blue book of canning is a great place to start. There other good books out there as well. I have several highlighted on my book page.

    Also, if you consider alcohol to be a necessity like I do, making your own beer can also be both fun & thrifty at the same time, especially if you like darker ales & imports like I do. If you’re a Bud drinker, you’re better off getting good deals at the liquor store.

  6. phædrus says:

    Brewing’s definitely on the list to learn.

    I’ll pick up that ball book – this year I think we’re mainly going to be doing tomatos and peppers so it sounds like the boiling water canning will do me fine.

    Thanks!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: