A giant in decline: geopolitical ramifications of a U.S. financial collapse.

I guess I don't have much to say about this article, other than "right on". This is the sort of thing that keeps me up at night.

Some choice bits:

"The result of this reluctance to confront the consequences of America's credit excesses -- a federal government debt level that is now at $7.5 trillion. Of this, $1 trillion is ancient history; the other $6.5 trillion has built up over the past three decades; the last $2 trillion in the past eight years; and the last $1 trillion in the past two years alone. According to the economist Andre Gunder Frank, "All Uncle Sam's debt, including private household consumer credit-card, mortgage etc. debt of about $10 trillion, plus corporate and financial, with options, derivatives and the like, and state and local government debt comes to an unvisualizable, indeed unimaginable, $37 trillion, which is nearly four times Uncle Sam's GDP [gross domestic product]." This rising level of indebtedness will become a huge deflationary weight on economic activity if debt growth should seriously slow – which is the economic equivalent of a Catch-22."

"Even if China, Japan, and other East Asian nations continue to accommodate American financial profligacy, a major economic "adjustment" in the U.S. could still be triggered simply by the sheer financial exhaustion of its overextended consumers. After all, the country already has a recession-sized fiscal deficit and zero household savings. That's a combination that's never been seen before. In the early 1980's, when the federal deficit was this size, the household savings rate was 9%. This base of savings enabled the government to finance its vast deficits for a time through a huge one-time fall in net savings, the scale of which was historically unprecedented and not repeatable today in a savings-less America."


"...many Americans would likely experience a major decline in their living standards -- a gradual grinding-down process that could continue for years, as has occurred in Japan since the collapse of its credit bubble in the early 1990s."


"The CFR report made another salient point clear: "Oil price spikes since the 1940s have always been followed by recession." In its current debt-riddled condition, further such price spikes could bring on something more than a garden-variety economic downturn for the U.S., especially if some of the major oil-producing nations, such as Russia, follow through on recent threats to denominate their petroleum exports in euros, rather than dollars...."

"Venezuelan President Hugo Chavez, for instance, returned from a Christmas trip to China where he apparently sold America's historic Venezuelan oil supplies to the Chinese together with future prospecting rights. Even Canada (in the words of President Bush, "our most important neighbors to the north") is negotiating to sell up to one-third of its oil reserves to China. CNOOC, China's third largest oil and gas group, is actually considering a bid of more that $13 billion for its American rival, Unocal. The real significance of the deal (which, given the size, could not have been contemplated in the absence of Chinese state support) is that it illustrates the emerging competition between China and the U.S. for global influence -- and resources."