[quote=DWCAP]
So there is plenty of money out there that has to go somewhere. And these states will contuinue to play the game if only because there are no other games in town. China cant sell cheap crap at wall mart in a depression. We wont need Russia’s or SA’s oil if we dont have jobs to drive to. They will loose Trillions as our debt becomes worthless and their stored dollars become toilet paper with a neat logo. Or they can send a few billion more along witht the Trillions they already have and around and around we go.
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Let’s say you run a furniture store. You offer your customers seller financing. Business is booming. You’ve got one particular customer who buys an awful lot of furnature. Of course, this customer buys everything on credit. You pay for the raw materials, you work your butt off building furniture, and you accept IOU’s in exchange for your furniture. The IOU’s are profit in the accounting sense, but they are only valuable if they get payed back. When it looks like this customer is broke, you have two choices. You can say, “Oh, he’s my best customer. I hate to lose my best customer. I’ll extend him a bigger line of credit.” Or, you can say, shoot, these IOU’s are worthless. I need to cut my losses. I’ve given this guy an awful lot of furniture for basically free. I’d rather give my furniture to my family than accept more bogus IOU’s from this bankrupt con artist. Which would you do?
I’m not saying I agree with the analysis that the US will default in specifically the summer of 2009. Who can really guess what wacky things human beings will do? But just as home prices couldn’t go to infinity, our debt to China and the rest of the world can not go to infinity. At some point, inevitibly, they must become less willing to accept our worthless IOU’s. So what if they can employ their people giving us stuff for essentially free? They can better employ their people making things for their people, and while the dollar is still the medium for exchange on commodity markets, they can buy the raw materials they need to provide for their people with the dollars they are holding until the dollar collapses. Bernanke and Paulson are turning more and more aggressively to the printing press as a solution. We are already “defaulting” by paying our debts with monopoly money. This WILL reach a breaking point at some point. It has to. It behooves us to be aware of this and be prepared, just as it behooved us to be prepared for the housing downturn.
