Mint Life has a very nice overview of the EU crisis.
It’s in 3 parts: Understanding the Crisis, The Counties Involved and The Potential Consequences. The last article points out the potential danger that nobody likes to talk about but is worth mentioning at least once, lest we forget:
It is worth recalling financial crises have helped install the worst among men into political power. Adolf Hitler, for instance, rode a wave of unrest over Germany’s massive unemployment into the Chancellor’s seat. Joseph Stalin also obtained public support by promising solutions to Russia’s economic woes. Though it’s unclear if another Hitler or Stalin is waiting in the wings, history shows that cunning politicians are fully capable of exploiting financial chaos to everyone’s detriment but their own.
John Reed, who predicts hyperinflation in our future, thinks that default is the only real solution – not just for the EU nations but for US as well. Face it citizens, we owe $15Tn (ignoring unfunded liabilities, of course) and we are spending $3.5Tn this year and taking in $2.1Tn in tax revenues. What is the exit strategy here? Cut spending in half? Double taxes? Like John, I think ultimately we have to face up to the fact that we are either going to finally admit we can’t pay this debt and default (as many other countries will have to do) or we will have to inflate our way out of debt (effectively growing GDP to the point where $15Tn is no longer an unpayable amount). Either way, the people we owe money to are pretty screwed.
Unfortunately, for the US, we owe most of that money to our own people. Japan owes 80% to their own people and the EU mainly owe money to each other. Notice on this chart that 1/2 of the outstanding Treasury Debt is owed to the Fed. No wonder they are so interested in keeping this game going at all costs!
In a Forbes article titled "Learn to Love A US Default," John (something about Johns) Tamny says: "For Americans to worry about a debt default is like the parent of a heroin addict fearing that his dealers will cease feeding the addiction. In truth, just as the much-needed heroin withdrawals would mark the beginning of the addict’s recovery, so would a cessation on the part of investors when it comes to funding federal waste signal a United States on the mend."
I think hyperinflation is an easier pill to swallow than default, which is why we love our TBT. Either way, lending the US government money for 20 years at 3.5% interest so they can run up another $70Tn in debt and expecting to get paid back in dollars where $100 will buy you more than a happy meal in 2030 is madness.
