To big to fail, bail outs etc devalue currencies and that ultimately weakens a state. But It seems the Fed etc are no longer keen on propping the US dollar and inflation(money printing) is the only way out to finance deficits and TARP for banks etc. Inevitably the global economy will collapse and no one will have faith in paper money. These scenarios usually lead to war.

 

For the moment USA can still pull it off as China etc do not know what to do. Even EU got scared when dollar devalued against Euro- their question was who wll buy their exports? The correct answer was its really no use to sell and collect dollars so other markets have to be found. Either the world de-links itself from the export to US model or it collapses in its own bad habits, we shall gladly issue freshly printed dollars to all that want to give us Mercedes and flat panel TVs in exchange-lol. We shall soon find out. (my bet is the rest of the world delinks from the US and slowly abandons the dollar, this would be paticularly true if OPEC accepts other currencies as payment). Notice how Australia increased its interest rates, effectively facilitating dumping the US dollar to something known as carry trade. You can fool me once You can fool me twice...but cannot ....

 

 

Dollar will collapse in 1 to 2 years, oddy enough China is not buying houses here or anything, instead more resource purchases in Brazil, Canada, Australia, Africa, Central Asia. Its simply bad luck for US that even when these folks have money US is simply not where they are going to spend and notice unemployment 10.2%/17.5% underemployment and Australia is 4.5% or so. A number of my friends have been out of work or working half pay or worse. They are waiting for the "recovery". My advice is for those in a rut should leave the US for jobs as the rut will last a while. Some say 4 more years for rcovery and some say 20 to 30 years to clean up the mess.

 

Who besides the government is hiring?

We could open every square inch of our country to oil extraction and sell it to China, but apparently that would take years.

 

I'm not inclined to worry much, Obama promised to take China to the mat over any currency manipulation, it's not like he'd throw us under a bus.

The best solution would be to,

 

1. Abolish the Federal Reserve

2. Provide a constitutional amendment preventing the US government from raising debt (with possible exception of war purposes)

3. Default on current debt

1) What's wrong with the Federal Reserve?  Every time the US has gotten rid of a central bank, it's come back to bite us in the end, and we ended up just having to come up with another central bank. 

 

2) A little deficit spending isn't necessarily bad, though not preferable.  What we have now is simply ridiculous.

 

3) Sure, if we wanted to wreck our own country.

 

Apparently they're just letting anyone teach at Harvard these days.

 

Oh, don't get me wrong.  Ferguson has a point--empires deep in debt usually don't do well.  But then he goes off the rails by comparing the US to Britain and China to Germany in 1900.  The evidence he uses is that China's building three aircraft carriers and nuclear submarines, and compares this to Germany and Britain's dreadnought arms race.  When military analysts point out that we've yet to see a single keel laid on a Chinese carrier, aside from a refurbished Russian type, and that we've been teased with the boogeyman "Chinese carrier force" for the past 15 years, Ferguson brushes it off by saying Churchill underestimated Germany in 1900 too.

 

Uh, Prof. Ferguson?  Germany lost that arms race.  Alfred von Tirpitz realized this by 1912, which is why he came up with the idea of "risk theory."  Risk theory presumes that the Royal Navy would blow the hell out of the German High Seas Fleet in an engagement, but would lose so many ships that Britain would lose control of her empire.  When your theory involves essentially writing off a multibillion dollar battleship fleet in the hopes of doing your enemy some damage, that's not very effective.  Essentially, Tirpitz was admitting that the British were capable of outproducing Germany, and already had a big head start--something Churchill, who "underestimated" Germany, had realized as well.

 

Tirpitz also assumed the Royal Navy would leave part of its fleet in the Pacific to guard India and its Asian colonies.  He didn't reckon on the British concluding a treaty with the Japanese that allowed the latter to keep an eye on things while Churchill, as First Sea Lord, massed British naval firepower in the North Sea and bottled up the German fleet.

 

The one major collision of the Royal Navy and the High Seas Fleet at Jutland in 1916 was a draw--the British lost more ships due to faulty design of their battlecruisers, but the Germans never sailed from their ports again, and the High Seas Fleet ended its career by being scuttled by their own crews.  If that's the outcome we're going to get with China in a naval war--the PLAN scuttling itself to avoid being taken as war prizes by a victorious US--we're going to do okay.

 

Britain didn't overestimate Germany; it correctly noted that Germany would not be able to fight a sustained war.  Who won World War I again, Dr. Ferguson?  It wasn't Germany, my esteemed colleague.  Three Chinese carriers against 12 US ones--oh, let's make it sporting and say merely six American carriers.  In the confined waters of the Taiwan Straits?  I likes them odds.

 

Ferguson knows his stuff economically, but man, find a better analogy. 

1) What's wrong with the Federal Reserve?  Every time the US has gotten rid of a central bank, it's come back to bite us in the end, and we ended up just having to come up with another central bank. 

 

Everything is wrong with the Federal Reserve.  It simply isn't true that in periods where the US has not had the Federal Reserve it has suffered because of it.  The US Federal Reserve, since it inception, has manipulated the demand and supply of money by artificially setting interest rates that have no relation to the supply of savings in the US economy.  The interest rates set by the Federal Reserve impact each and every investment decision in the US economy.  In other words, each and every investment decision in the US is made using information that is fundamentally false.  Whole business models, being they those of Lehmann Brothers or Goldman Sachs are entirely reliant upon an artificially set cost of borrowing that has no foundation in reality.  What it leads to is malinvestment, and in the US case, very destructive malinvestment.  Your Federal Reserve creates bubble after bubble that is inflated by speculative investment that is inpired by the false signal that your central bank sends to economic actors.  Bubbles by definition - whether it be that of your stock market in the 1920s, the tech-stock bubble or most recently the housing bubble are all a direct result of the Federal Reserve's interest rate setting (and other government manipulated distortions).  Why was it that with the rules prescribed by the bank appointed supermen at the Federal Reserve there was widespread panic and bank failure in the US in the late 1920s but in Canada the sum total of bank failures at the very period, was the grand sum total of zero?

Ask yourself why you believe Moscow bureaucrats are incapable of determining the supply and demand of bananas (or Volga cars) for Soviet Citizens which only affects moderately important consumption decisions but for some miraculous reason the Soviet Central Commitee making clandestine decisions at the Federal Reserve is someone wise and benevelont enough to accurately determine the supply and demand of savings which ultimately determines every single investment decision in the United States (and as it happens abroad)?  Why is legitimate for the government to be engaged in counterfitting US dollars in Washington but it isn't for you to do so in your basement (you'd create a lot less damage with your limited production runs)?  Why are Soviet bureacrats in Washington more capable than Russian ones sitting in Moscow?  The simple answer is they are not, they are just as bad and potentially far more destructive.  Anyone seriously studying the Federal Reserve's behaviour these past twenty years needs to reach the conclusion that they are a dangerous and wealth destroying coterie of central planning economic imbeciles who subscribe to Keynesian, central planning falsehoods that are more easily disproven than the notion that the world is flat. Even Greenspan now admits that he fucked up big time but naturally Bernanke will do a better job (despite doing the very same thing) this time. 

 

2) A little deficit spending isn't necessarily bad, though not preferable.  What we have now is simply ridiculous.

Uh, Prof. Ferguson?  Germany lost that arms race.  Alfred von Tirpitz realized this by 1912, which is why he came up with the idea of "risk theory."  Risk theory presumes that the Royal Navy would blow the hell out of the German High Seas Fleet in an engagement, but would lose so many ships that Britain would lose control of her empire. 

 

Tirpitz miscalcuated the the British ability to calculate.  He was roughly right, a military engagement (though not one confined to naval battle) between the two powers would end the British Empire, only the British didn't realize it beforehand.  The Germans, beginning with Rome, later France, moving on to Russia, and then Britain, are empire destroyers.