Carmen Reinhart and Kenneth Rogoff's paper, This Time It's Different, refers to the idea that sovereign defaults are a thing of the past. That we have somehow fixed what was wrong and it won't happen again. Reinhart and Rogoff think otherwise. But this time, in a different way it really is different. This time default will come to both banker and debtor alike. The bankers' system itself is now collapsing under the weight of debt that the bankers' debt-based money has produced. Banks are finding themselves increasingly bankrupt as are the governments the bankers used to debase the world's currencies. This time, not only will Argentina possibly suffer another sovereign default, so too will its creditor, the US, as will many of the US banks that issued that debt. The default of the US will remain, however, outside the limited definition of default used by Reinhart and Rogoff. The US will not miss a payment or reschedule its debt. Unlike Argentina , the US prints the currency in which the Argentine and US debt is denominated. The US will print its way out of its debts. Argentina cannot. Because of the enormity of the US debt, the amount of dollars necessary to print to pay down the debt will lead to hyperinflation in the US and the destruction of the US dollar. Those who live by the sword sometimes die by the sword-though not often. In that same article where Professor Kotlikoff estimated US liabilities to be $65.9 trillion, Kotlikoff also wrote: The United States ..appears to be running the same type of fiscal policies that engendered hyper inflation in 20 countries over the past century. Maybe this time it isn't different. – Market Oracle
Dominant Social Theme: Everybody is in a panic and worse is coming.
Free-Market Analysis: We've stated that the Internet has aggravated the ferocity of this latest financial "crisis" in that it has come on harder and sooner than any hypothetical global elite might have preferred. But that doesn't mean, contrary to the article above, that those somewhat in charge of the banking system (and banking is the proximate cause of these exaggerated business cycles) didn't expect something like this to occur.
Many of the sagest of the banking class – what we know of it – have been around a while. We can disagree with them about the reasonableness of the path down which the world is being driven, but to conclude they had no idea that a downturn was coming and that it would be a bad one is a bit of a "stretch" in our opinion. The staggering amount of derivatives liability alone, in the hundreds of trillions apparently, would give rise to the idea that this time it IS a bit different. But having stated that, one is inclined to ask "what then?"
Glad you asked! Let us conjecture together. Let us ponder, even pontificate (we're good at that, whether or not you are, too). Let us, finally, look, feasibly, for the following: A good deal of pain in the West that likely includes at least a mild if not moderate form of a depressive hyperinflation (mild, mind you, if you are not a victim of it) and fevered, anxious, endless efforts by the next American administration to "reach out" to the countries to whom America as an aggregate entity is evermore viciously indebted.
What form will this "reaching out" take? Both American candidates are "reacher outers" – despite the American media's attempts to paint them otherwise. Obama has made a business out of his internationalist ideology. And being affiliated with the Trilateralist wing of the Democratic party, and those who stand behind Trilateralism, he will be inclined to involve the United Nations and other supra-national organizations in American affairs, further or perhaps fatally entangling that "superpower" in a larger edifice of an emerging world government.
And McCain? McCain already has a long history of reaching out "across the aisle" of American politics. Most recently, he was with others including George Bush, an author of a failed immigration act that in many ways would have signaled the end of American sovereignty over its own borders. McCain, like Bush, despite the rhetoric, is an internationalist and globalist when it suits him, and his backing, believe it or not, likely comes from the same groups that are backing Obama.
So what can we expect from these two as America's economic condition declines? McCain will likely sound a more bellicose note before "reaching across the aisle" but the result of either administration will be a concerted effort to palliate America's debt holders and to use the debt-ridden status of America as justification to further internationalize the regulatory status and sociopolitical sympathies of that once-great nation.
How would such continued internationalization work? Look for ever more complex legal treaties, the enhancement of a supra-national judicial system, even the more aggressive utilization of the United Nations as a mediator for America's many monetary and military woes, etc. The upcoming administration will be a more internationalist one no matter who wins America's highest office.
It is difficult to avoid the sneaking suspicion that the top monetary men (they are almost all men) didn't see this thing coming. Combine that with the proclivity of the Anglo-Saxon elite to press for an increasingly global monetary system (which would inevitably generate a political one) and the idea emerges that no matter how the current crisis unfolds, it will inevitably be used to further open up the American republic to outside influences.
Of course there are alternative ways of looking at it. Respected hard-money author Jim Willie has very recently provided us with another scenario:
If price mechanisms and market mechanisms return with force, then big shocks are coming. All the fraud, all the aggressive military movement in the last few years, these actions have resulted in an isolation of the Untied States in ways that have eluded detection by the great majority of Americans. The many continents are engaged in meetings, where new systems are being designed for trade and banking, as they prepare for a new age without American dominance, and perhaps without American participation. The more US Government leaders talk about terrorism and use aggression abroad, the more the nation becomes increasingly isolated. One must wonder if the current US president will take up residence in Paraguay at the end of his term, where he has purchased tens of thousands of acres of property only a few years ago. My personal preparations are in defense of what are considered to be a gradual relentless national degradation into martial law. The remaining question is whether the price structure will be consistent with shortages at work. With ultra-high prices might come violence. With ultra-low supply might come violence. With depleted job prospects might come violence. With continued home foreclosures might come violence. With helplessness to Congressional compromise, imposed burdens, and corruption might come violence. LIKE IN FRANCE AT THE BASTILLE, HIGH FOOD PRICES MIGHT COME VIOLENCE. With public expression of outrage at US Government & Wall Street corruption, profiteering, and utter distortions of truth might come violence.
We're not sure we buy off on Willie's argument entirely, as plausible as it sounds and well-reasoned as it might be (and Mr. Willie is nothing if not reasonable, and smart as well). But the monetary elite, as savvy or dumb as it is, is also relentlessly globalist.
Thus, it doesn't make much sense, to us anyway, that an opportunity to shove America around would shove it away from the internationalist edifice now being erected. Willie certainly does have a point that the momentum of certain events may tend to isolate America vis-à-vis the rest of the West – or that American citizens may rise up in frustration at the inevitable crossroads and shout "halt" at the midnight hour. But American citizens have not yet shown a proclivity to do that sort of thing, oddly enough because of what we believe is a self-reliant streak ingrained in America's middle class.
Unlike those unhappy residents of other countries, Americans are not conditioned by eons of oppression to believe that government is the inevitable problem. That does not mean they enjoy or like the government they have got, only that culturally, they are not conditioned to regard it as the biggest and most implacable obstacle. Instead, poor Americans! – many are inclined to blame themselves for their troubles and in a strange, introspective manner, start to work harder at more jobs rather than try to analyze a larger globalist picture. It's just not quite in the American psyche to look at things from the perspective of an international citizen, much less a global banker.
Yet America remains most important, whether it is a dominant economic force or not. The last thing that is needed from a banking point of view at this time – in the emerging globalist village – is a powerful nation with a independent streak.
In what is likely emerging in the 21st century, the technology and military competence of the United States will be in demand, and thus it will likely stand in as the "world's policeman," a role it is already undertaking. But it will be a far less powerful force economically and likely far more fettered by various international financial treaties and monetary workouts. That future for this battered giant begins now.