Mutually Assured Economic Destruction

Imagine a bunch of guys locked in a room, each with a grenade strapped to his chest, and each with a forefinger hooked into the pin of some other guy's grenade. If anybody pulls out, somebody else dies and everybody else gets hurt, perhaps killed.

That's the international currency and commerce gig right now. The U.S. of A is trillions of dollars in debt to China, Japan, and some Middle Eastern entities. Part of that is our ever-growing federal budget deficit, and part of that is our trade imbalance. Cheney, Bush and Company have Dad’s credit card, which has the highest limit on the planet. They are buying loads of cool stuff from all their friends in the military contracting business and handing out billions to the fossil fuel industries. Meanwhile, American drivers and consumers are exporting huge amounts of cash to oil producers and overseas manufacturers. We are also going into hock building and buying real estate, although that is slowing down dramatically. All this debt is keeping our economy running for the moment

Oil producers need America to stay economically healthy so they can get that continuous stream of oil revenue to keep their populations (somewhat) happy and stay in power. China needs America to keep buying plastic crap at an increasing rate so the Chinese economy doesn't collapse. America needs China, Japan, and a few others to keep buying our Treasury notes so we don't go bankrupt. America needs dollar denominated crude to keep the value of the dollar from collapsing and bankrupting us that way. Our providers of oil and plastic crap need the dollar to stay strong so that we can afford their oil and plastic crap. The oil producers are buying stuff from Asia, so more dollars are dumped there, which are then loaned back to us.

So, our spiraling debt is making everyone nervous. It's a game of reverse chicken. Every country that has bought our debt wants to be the one that pulls out of the dollar first, but without creating a run on the dollar. Every one of these countries knows that if it makes a major move, there will be a stampede. If the dollar crashes, then we’ll buy a lot less oil and plastic crap, and the planet-wide Ponzi scheme collapses. Millions of Chinese (and Indonesians and Malaysians and Koreans and…..) will get laid off and end up in the streets, starving quickly instead of slowly. Millions of ordinary folks in Saudi Arabia, Kuwait, Venezuela, Mexico, and other oil producing countries will find their public services and subsidies drying up. You’ll need a program to keep track of the riots and revolutions. For us, the price of everything will jump, along with interest rates. It will be mid-seventies stagflation on steroids.

The alternative to collapse is political suicide for our (semi)elected representatives. They will have to balance the books, mostly on the backs of those who have been making multi-thousand dollar donations to their campaign funds. It’s not about ideology – it’s just that those donors are the only ones with enough money left. We will have to pull out of Iraq and make major cuts to the military-industrial hog trough. We’ll have to roll back those tax cuts for millionaires and corporations, and probably ratchet up their rates back to the levels of the 1950’s. Our economy, which has staggered along on the biggest rubber check writing spree in human history, will go into deep recession. There will be major societal damage, but less than if we let the whole Rube Goldberg machine cartwheel off a cliff. Many members of congress will undoubtedly lose an eye in the ensuing frenzy of finger pointing.

The Republicans have had ideological brain surgery that prevents them from even conceptualizing the possibility of putting the corporate hogs on a diet. Most of the Democrats have been pre-selected by large donors for a similar policy aphasia and spines of the most flexible latex. I’m not optimistic.

We, as citizens, can do a few things:

1) Visualize $8 a gallon gasoline/heating oil/LPG and $20/1000BTU natural gas, and act accordingly.
2) Localize our buying habits.
3) Invest time and money in our local communities.
4) Work on minimizing our personal debts.
5) Utterly harass our elected representatives on the subject of campaign finance reform…no…make that campaign finance revolution. We need mandatory full public financing.
6) Depending on the success of campaign finance revolution, we can then swarm our elected reps on the subjects of debt reduction, including hog trough closings, and sharp reductions in our use of fossil fuels.

Options 1-4 are good things to do no matter what happens, and will begin to mitigate the local effects of international economic turmoil. Options 5 and 6 have a low probability of success, but we need to pursue them anyway, just to maintain our status as conscientious citizens.

Did I hear the muffled click of two pins being pulled?

UPDATE: I have to admit that this essay is substantially wrong, at least in terms of currency economics. I got seduced by the panic-mongers. See this later essay for a correction. I stand by my recommendations for action, especially in terms of campaign finance reform.