Checking Gregor us "USA Flow Chart" published Nov 2008
...from this point forward: The US attempts to hobble though the next 2 years with a combination of massive Keynesian spending, partial reflation, a weaker USD for exports, continued losses in the financial system but not alot more nationalization or failures, and lots of loan modifications on mortgages.
If this fails, then one of the following must happen: 1. The aggregate debt of the US both public and private is reflated away via a strong inflation that is at least as bad as the late 70's, and there is an open devaluation of the USD.
2. The same quantity of debt is deflated away through total outright default of the kind that is associated with collapse or seizure of the system.
While I don't know the outcome, I am certain that the Hobble Through attempt is already underway, and that number 1. will be chosen before number 2.
Final thought: consider all those currently advising Obama, including his new Treasury Secty. Then let's hear what Obama said today in his Saturday radio address:
“And now we risk falling into a deflationary spiral that could increase our massive debt even further,” the president- elect said.
Seems pretty clear to me that Obama has already been made to understand (Volker, Buffet, Rubin, Geithner, Reich, etc) that the Debt is a bomb already and that it goes nuclear if deflation takes hold. As you may have seen in my other post on this topic today, Summers is being brought in to serve in the role of Spending Advisor. This guy has been very clear the last 6 months about his solutions. He is FDR Jr. but the magnitude is going to be even larger. |
