Friday, July 15, 2011

What if the USA defaults?

First I voted Republican in a municipal election, now I'm about to say "maybe Michele Bachmann is right." There. I've said it. OMG, what have I done? I've just sat back and accepted that the Republicans will hold their breath, stamp their feet and churlishly say, "No, Daddy, I don't wanna raise the debt ceiling!" And on August 2 ...

... what? At first, nothing.

On Tuesday, August 2, Uncle Sam won't be able pay all his bills and at some point that day, either President Obama or Secretary of the Treasury Geithner will make a statement concerning the plans of the U.S. government. I assume that someone in the White House or Treasury or Pentagon, or all three, is already developing plans of action.

Here are a few possibilities for that first week.

The stock markets will probably dip quite a bit: 500 to 1,000 points of the Dow index in the first morning. The face value of U.S. treasuries will likely drop dramatically. Investors will flee the U.S. dollar ... but to what in a world in which almost every currency in the world has some dollar in it? Any future borrowing by the USA will probably become very expensive -- deepening the national debt. Prices will begin to shoot up. Riots in the streets? Doubt it. Where have American rioters been these past three years?

Then there's the ripple effect. If the exports-driven German boom faces a U.S. market with devalued dollars that can't afford Mercedeses and BMWs and Braun shavers ... there goes Germany. Then France, then England. Then the rest of Europe and Japan. Most of the rest of the world is, unhappily, already there. Many countries have defaulted and quite a few are on the brink. Like us.

But let's not forget China, the prime holder of U.S. debt. What if China decides to come grab some collateral it has coming ... say, New York City or Los Angeles? China's standing army is somewhat larger than that of the USA. But grab a hold of this fact: China has 385 million men and 363 million women potentially available for military service. That's twice the U.S. population and then some. And they have nuclear weapons. But, OK, even China can't invade instantaneously.

So, what happens in a world in which the full faith and credit of the U.S. government no longer means much of anything certain?

It's a good time to pick up asceticism as a way of life, Franciscan or Buddhist or whatever flavor you like. Give all you have to your fellow poor. It's worthless, anyway.

Then fast and begin chanting your Hail Marys or merely "Ommmmm ..."
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