The World Will Keep on Spinning
There are many events unfolding in our world that tell us (if we are looking) that hard times are ahead. To actually DESCRIBE what that will look like tho? that's a head scratcher for sure.
By no means do I believe the world will stop spinning and completely melt down but the extent of change that is coming to America will be significant.
I believe we will look back and describe it as a depression but cannot state this with 100% confidence, it's an opinion.
There are degrees of outcomes that will depend a lot on the decisions that are made at the highest levels and also how soon steps are actually taken to remedy the mess!
Looking down the road for answers without all the facts means we have to 1st try to ask the right questions and then take what we have learned (what we know) and properly apply it in answering those questions.
This is where the rubber meets the road and so I must apologize in that this post is quite general as I still have more questions than answers. To start, the following post got me to thinking because she is asking the right type of questions:
Post From KTFA By Waiting3 » February 22nd, 2014, "... I just want to protect and prepare for these tough times ahead....when the U.S. economy finally has its "meltdown," do you think every country will be affected?
I would assume most countries would, and some more than others...except for maybe North Korea...[and]..... if New Zealand or another country that seems to be pretty stable will be affected as well.
Answering the questions given above will have great value to us in making long term decisions. This post is an incomplete attempt at doing that.
Waiting3, your thinking is right on track here in that there is not a cookie cutter answer because each nation will weather the coming economic storm in varying degrees. Some factors that will determine the degree that countries will see hardship would be:
1) their exposure to the US bond market (how much of our debt did they hold the day the music stops either by full default or some major currency drop)
2) their own level of sovereign debt (as % of GDP)
3) their level of trade with the US (trade in USD)
At one extreme I believe some will feel little to no effects. These will predominately be economies that have little or no debt. Norway would have be placed at or near the top of any such list as they are quite stable in this regard.
Next would be nations that see minimal trade in the USD. Many nations have been changing the way they settle their trade and among these, IMO, most eastern economies extending south to Australia and New Zealand will be setting pretty well.
Russia, China, India, South Africa and Indonesia come to mind. The big oil nations of the middle east are hedging their positions as well.
In attempting to answer this we can look at recent trade agreements for big clues. Many countries have signed currency swap arrangements in the past 1-2 years, mostly with China and then oil is also being settled outside of the USD with arrangements being made such as India with Iraq and Iran with many nations.
The list here is quite long and it is ALL evidence that the world is preparing for "The Day the Dollar Dies".
Of importance also is that this very act of nations slowly and quietly making arrangements that bypass the USD is having an accumulative effect and this will finally reach a tipping point (where it can no longer be ignored) then things will likely unravel quickly with the loss in confidence in the USD coming seemingly out of nowhere for most Americans who will be (happily) clueless.
Memphis note: I opened this post with the suggestion of varying outcomes. This is where that comes into play. It seems logical that the shift towards a new monetary standard should come prior to a full default by the US thus averting the worst case scenario.
A "Mad Max" type event. This is my hope and we'll discuss that some later in the post.
On the other (adverse) end of the spectrum would be the mostly western economies that are deeply connected to US debt and these will be effectively drug down with us as the crisis in our currency manifests.
I believe that Southern Europe will be showing major problems before the US and Japan is very problematic as well. Their bond market is a concern to many smart analysts as their debt/GDP ratio of 2.5+ is unsustainable. If you plan on moving to Japan, send me a post card...
In the middle somewhere I believe that there are many countries that will not feel many strong effects. Most of South America, Africa, and even northern Europe (if they unhinge from the south).
Again, these are not linear discussions where you can point to one single thing and then apply causality. For example I am ignoring each nation's manufacturing capacity...what they actual make.
Economies that are big in export (China to name one) will rebound much more easily whereas economies that are heavily dependent on import (like us) will suffer the effects longer.
We simply do not produce most of our goods as we once did!
I have heard it said that "China needs us! They NEED us to buy their stuff!!".
That is hogwash. The world has been supplying the excesses of America for many years and getting a deflating $ in return.
As I see things, THIS is the very heart of the transition that is taking place in the world and we are an impediment to China (and others) as they are now conducting a difficult transition inward wherein it will be THEIR citizens who will be propelled into a middle class and then THEY will buy their own goods....no, China will not miss us, in fact the entire economic engine of the world is (and has been) shifting to the east.
Important, money (capital) does not feel emotion. China is not suddenly "against" the US but they (and the rest of the world) are simply being forced to move on to the next game in town.
Had our leaders acted with fiscal responsibility and had we not tried this experiment in socialism with massive gov't then we would still be the envy of the world but these cycles always complete because man's nature does not change. It is simply time.
If (big if) the financial leaders do certain things right in the next year or two then some of the negatives can be reduced but NOT eliminated. This leads to my closing thoughts...
I have recently heard some interesting and refreshing discussions that actually talk about a "GCR" that accounts for the levels of debt. IMO it is largely the extent to which these sovereign debts can be wiped clean that will determine the depths of depression that our economy (and others) will see.
Even a shift of a few degrees could mean several years either direction as we attempt to adjust to the new normal and slowly...rebuild.
As my recent posts have said tho, my confidence in our world's thinkers is lacking. It is an every man for himself attitude that must be overcome.
It must be said tho that the mere fact that the removal of at least some % of sovereign debt has FINALLY entered the discussion allows for the possibility of some real change.
There are many discussions of the SDR being finally called into service to settle global trade. Time will tell how things are handled but do not expect to hear about any coming sudden changes on Fox or CNN the week prior.
I have a picture in my mind of life in America in the years ahead and it looks quite different than what we have known but that's not all bad. We will stop looking to gov't for the answers and handouts.
We will once again take care of our own aging family members and many people will again work with their hands. Farming will again be considered a career choice. Not all bad eh?