Hyperinflation
- Thread starter Bestmiler
- Start date
I think if US ever suffers a default it is done. Since it is a net energy importer plus a country addicted to cheap chinese stuff @ walmart and cheap credit and cheap gas it would be the most awful economic times possible (only second to collapse of soviet union).
It would be a much bigger collapse than the Soviet Union was. Things trade in dollars around the world. The dollar is the worlds reserve currency, at least today. How many more weeks or months is a different question entirely.
A little deflation, followed by lots of inflation, then a subsequent worldwide major depression that reduces us to barter, that's my guess as to what will happen. The banking industry is undergoing consolidation already, along with that goes power consolidation. Electronic markets will be non existent in a barter environment though... I wonder what form trading could take... what period in British history would correspond to the US being largely a barter economy... they had guys sitting around Lloyd's of London trading stuff... we could be reduced to that, and pit trading could make a come back... maybe sort of a craiglist financial market could start up...
Don't worry about it, it can't happen, the US economy will completely seize up first.
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And finally, as our debt levels are unsustainable, a continued deflationary move will have a horribly negative effect on tax revenues when we are continuing to spend at furious rates. Today we can not afford a great depression, since we now have surpassing 70%+ debt to GDP, not to mention social security and medicare entitlements weighing us down. In 1929, debt to GDP was 16.3% (16.9B of debt against 103.6B GDP). Near the trough of the depression, debt ballooned to 27B against 66B of GDP, a debt to GDP ratio of 41%. Consider this: This was in a time without social security or medicare obligations.
During the great depression, the GDP moved from 103.6B to 56.4B (falling 45%). Now, with over 10T of debt against 14.4T of GDP, we are at 70% debt to GDP ratio. If we saw GDP fall 45% (to 8T) and merely maintained our debt level, new debt to GDP would be 125%. If we repeated a similar scale of debt increase (+70% from 10T), our new debts would would be at 17T against an 8T GDP with no meaningful personal savings backdrop. At 5% interest (very optimistic), our debt service cost alone would be $850B/year! All against tax revenues at most around 1.5T (reflective of an 8T GDP). We spend that alone on Medicare and Social Security right now!
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http://scriabinop23.blogspot.com/2008/11/unsustainable-bubbles-deflation.html