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.