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World Political and Economic Scenarios, 20yrs Ahead

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To lose reserve currency status implies that people who hold claims on the U.S. call in those claims: i.e. exchange those claims for real goods from the U.S. For instance, if China was to sell $1 trillion of its US$ bonds, it would get $1 trillion US$ currency. If it then took this and bought gold from (say) South Africa, the US$ balances previously held in China would now be in South Africa. Whoever holds this US$ currency can again decide to buy US$ bonds. The ratio of US$ currency versus US$ bonds (which are basically two types of claims on US-based people) will impact interest rates, but there is little reason for the ratio between them to change in a lasting way. The real impact on the U.S. will be when the total of US$ currency & US$ bonds held externally is reduced.

Continuing the example above, if the South Africans decide to buy a whole lot of Boeing aircraft, the US$ will return to the US.

The prospect of all those dollars ending up back in the US and tangible goods ending up outside the country is exactly what I expect to happen.

Edited by iflyboats

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I think that 'reserve currency status' also refers to

A) Much of the world's commerce is denominated in USD

B) the fact that the world perceives the USD as the currently best store of wealth available. When the Euro goes boom (and it will), there will be a flow of wealth into dollars (and PM's).

These flows will mitigate somewhat the rate (but not the inevitability) of our swirling into oblivion. :dough:

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uta bin tarbo,

if you already see that, what do you think/predict/believe/guess after oblivion? The USD is in fact the World's strongest currency in large enough circulation. But don't you think that money is the epitome of abstraction, that a new system can be forged, almost inmmediatly?

What about the Continental, the Silver Dollar, then the Gold Dollar, now the paper dollar. Could we be heading to an electronic dollar as the epitome of fiat currencies? does it really matter? why ?

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The general problem facing the world's developed economies is too much debt: too much government debt, bank debt and private debt.

For private people and companies: private borrowers have to start saving more. This has already started. A second thing that must be done is for creditors to recognize losses. Recognizing losses means that creditors too start to save more -- to compensate for their loss. This does not happen overnight: it is a slow and uneven process.

Governments need to do the same. The U.S. government needs to gets its debt under control. This is not going to change rapidly, particularly when a huge segment of voters thinks the government should be spending more, and another huge segment thinks the government should be taxing less. However, I think public opinion has moved slightly toward deficit-control, and I also think there is a pretty good chance that public opinion will continue to move in that direction. The debate about the debt-ceiling brought this to the fore, and ended with a decision to slow the rate of debt-growth, compared to previous plans. This is too little. However, that's how democratic politics works: if enough people complain that it is too little, incumbents and candidates start to re-position themselves to show how they will address the complaints.

Odds are that the deficit will keep growing. I doubt the politics against deficits are string enough to stop that. However, I also think there is enough public opinion today that ensures it does not grow at a faster rate than the past. States and local governments have laid off people, some have raised taxes. The typical voter is actually willing to take some cuts in spending and is also willing to have taxes raised. So, in general, there is pro-austerity pressure. Austerity brings pain, and news-stories, and reactions: it's messy and not a straight-line move.

European news does help public opinion in the U.S. as well. It is easier for people to look at the concrete example of Europe and that helps make a future -- which is probably a decade or more away -- more real. This, in turn, puts pressure on avoiding that future, or pushing it further into the future.

Indications are that the U.S. is going to see a flattening of the economy or even a double dip. If that happens and if public opinion swings toward the "we need huge stimulus" camp, that will be a bad sign for the country. On the other hand, if a slow-down pushes people to the "we've tried stimulus, we now need austerity" camp, it will be a good outcome. Note that even the "we need stimulus" camp feels the need to say that we need short term stimulus coupled with a long-term plan to control the deficit. So, wait and watch.

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The general problem facing the world's developed economies is too much debt: too much government debt, bank debt and private debt.

For private people and companies: private borrowers have to start saving more. This has already started. A second thing that must be done is for creditors to recognize losses. Recognizing losses means that creditors too start to save more -- to compensate for their loss. This does not happen overnight: it is a slow and uneven process.

Governments need to do the same. The U.S. government needs to gets its debt under control. This is not going to change rapidly, particularly when a huge segment of voters thinks the government should be spending more, and another huge segment thinks the government should be taxing less. However, I think public opinion has moved slightly toward deficit-control, and I also think there is a pretty good chance that public opinion will continue to move in that direction. The debate about the debt-ceiling brought this to the fore, and ended with a decision to slow the rate of debt-growth, compared to previous plans. This is too little. However, that's how democratic politics works: if enough people complain that it is too little, incumbents and candidates start to re-position themselves to show how they will address the complaints.

Odds are that the deficit will keep growing. I doubt the politics against deficits are string enough to stop that. However, I also think there is enough public opinion today that ensures it does not grow at a faster rate than the past. States and local governments have laid off people, some have raised taxes. The typical voter is actually willing to take some cuts in spending and is also willing to have taxes raised. So, in general, there is pro-austerity pressure. Austerity brings pain, and news-stories, and reactions: it's messy and not a straight-line move.

European news does help public opinion in the U.S. as well. It is easier for people to look at the concrete example of Europe and that helps make a future -- which is probably a decade or more away -- more real. This, in turn, puts pressure on avoiding that future, or pushing it further into the future.

Indications are that the U.S. is going to see a flattening of the economy or even a double dip. If that happens and if public opinion swings toward the "we need huge stimulus" camp, that will be a bad sign for the country. On the other hand, if a slow-down pushes people to the "we've tried stimulus, we now need austerity" camp, it will be a good outcome. Note that even the "we need stimulus" camp feels the need to say that we need short term stimulus coupled with a long-term plan to control the deficit. So, wait and watch.

I believe that we are headed for massive additional "stimulus." If our leaders were wise enough to refrain from "stimulating" in the future, they would never have "stimulated" us into this mess in the first place. Obama will NEVER stop deficit spending and Bernanke will NEVER stop printing money. Nobody in Washington will ever admit to having acted in error; they will only try to blame the results of their mistakes on others. This country will hit rock bottom before it changes direction.

Edited by iflyboats

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uta bin tarbo,

if you already see that, what do you think/predict/believe/guess after oblivion? The USD is in fact the World's strongest currency in large enough circulation. But don't you think that money is the epitome of abstraction, that a new system can be forged, almost inmmediatly?

What about the Continental, the Silver Dollar, then the Gold Dollar, now the paper dollar. Could we be heading to an electronic dollar as the epitome of fiat currencies? does it really matter? why ?

First, utabintarbo is all one word. Thanks.

Second, my post-oblivion scenarios were in my first post. FWIW, I tend to think the deflationary depression scenario is the most likely. In either scenario, we will likely end up less free, for the reasons stated previously.

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Odds are that the deficit will keep growing. I doubt the politics against deficits are string enough to stop that. However, I also think there is enough public opinion today that ensures it does not grow at a faster rate than the past. States and local governments have laid off people, some have raised taxes. The typical voter is actually willing to take some cuts in spending and is also willing to have taxes raised. So, in general, there is pro-austerity pressure. Austerity brings pain, and news-stories, and reactions: it's messy and not a straight-line move.

European news does help public opinion in the U.S. as well. It is easier for people to look at the concrete example of Europe and that helps make a future -- which is probably a decade or more away -- more real. This, in turn, puts pressure on avoiding that future, or pushing it further into the future.

Indications are that the U.S. is going to see a flattening of the economy or even a double dip. If that happens and if public opinion swings toward the "we need huge stimulus" camp, that will be a bad sign for the country. On the other hand, if a slow-down pushes people to the "we've tried stimulus, we now need austerity" camp, it will be a good outcome. Note that even the "we need stimulus" camp feels the need to say that we need short term stimulus coupled with a long-term plan to control the deficit. So, wait and watch.

True, the deficit will keep growing, until it can't. That is, when there will be no demand for Treasury debt at sustainable interest rates. You can see this happening in Italy as we speak - the interest rates on their sovereign debt is rising rapidly. At the point where the carrying costs of the outstanding debt exceed tax revenue, you become instantly insolvent. With the kind of deficits we are running, even a small uptick in interest rates on Treasury debt would be disastrous (assuming our present level of "obligations").

The alternatives would be inflate or run government on a cash basis. The second is the kind of austerity that would be economically sustainable, but politically unworkable. Too many people out there feel "entitled" to their free shit (see mass protests in Greece - it will be no different here, other than the guns :o ). But printing to satiate the masses blows the whole system up and effectively takes the US government with it. Better to put down riots than have utter chaos consume us.

In any case, given the general attitude of entitlement (see AARP :rolleyes: ), the only politically viable course is to keep the free bennies rolling. They may be trimmed a bit (with much wailing and gnashing of teeth), but they will not go away. There are very few politicians out there willing to commit political suicide, and very many who will tell people what they want to hear (see GOP Debates :rolleyes: ). Given the nature of compound interest, we are long past the point at which a long-term plan will be sufficient. We need to cut spending. Now.

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Both political parties have major themes that work against the notion of cutting deficits: the Democrats want to increase spending faster than GDP growth, while the Republicans want to reduce taxes without reducing spending enough.

However, I also think there is a streak of realism that runs through the electorate. When voters see little improvement, what will they do? Voters might double-down with one side's non-solution (i.e. faster spending or slashing taxes without slashing spending), thus making matters worse. However, I think there is just as good a chance that voters will decide it is time to slow spending increases and raise taxes.

Based on this, I think there's a pretty even chance that U.S. government debt as a percentage of U.S. GDP will be lower at some point in the next decade than it is today.

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I don't know about US voters softwarenerd, but here in the UK, the electorate doesn't like any public services being cut and whilst they don't like paying taxes, they are happy enough for "the rich" to pay them. Even though we have the example of Greece (and now Italy) all over the media, the Left are still opposing every single cut the our Coalition govt is making (and they are not really making many) and they have a strong lead in the polls (and this is with an embarrassingly inept and boring leader). They say they agree cuts need to be made, but you specify a particular area and "You can't cut that!!! :o, offer another area "Are you crazy?!" ok... how about.... "You heartless evil person!" - so what you would cut? "Y'know... erm... well... hmmm... just tax the rich, they can afford it!"

I fear that the politicians will do everything they can to keep the Euro together, which will mean Germany accepting "quantitative easing" (something they are keen to avoid for obvious historical reasons). If this happens, the hard choices can be avoided until further, more damaging economic crises arise and the Euro will be ultimately torn apart leading to market chaos.

Looking into the future, I don't see many positive outcomes. I'd like to say that we can educate enough influential people or that people will wake up to the reality before their eyes, but I fear that they won't. Our intellectuals are so wedded to collectivism that they are beyond hope. Further problems will be up ahead and, as always, the market will be to blame so of course we will need more government...

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Looking into the future, I don't see many positive outcomes.
You're probably right. The leftists won't give up on their statist spending. However, there is also a more responsible and long-term oriented segment of the population that has woken up to the issue. In the U.S., the "tea party" emerged as a voice for fiscal discipline. From what I understand, in the U.K. there has been political action similar to the U.S.: to slow the growth of deficits relative to previous plans. This is nowhere near enough -- since the revised deficits still grow faster than GDP does. Still, it is a start.

Will the voters' push to fiscal responsibility grow or will it fade away? I don't see what would convince tea-party folk to change their minds, unless we're able to trigger another credit-based boom, and that seems unlikely at this stage. Of course, the tea-party types are not all there is to politics. We have seen the other side rise in reaction. We have "Occupy Wall St." in the U.S., and the U.K. had its recent riots. Clearly, the statists will not give in without a fight.

I think the general mood of the voters is more fiscally-conservative than it was (say) five years ago. The bad news it that it is not anywhere near enough. The next challenge is for people to be convinced that playing around the edges is not going to cut it: there have to be serious pullbacks. When it comes to the explicit idea of cutting deficits, the leftists have a plan (soak the rich), while the GOP has none. The GOP pays lip-service to spending-cuts, but will not name anything significant. (Instead, their drum-beat is tax-cuts.)

The 2012 presidential election sees Americans with a slightly higher appetite for austerity, but not enough to make a difference. So, the deficit will become more serious. Will the tea-party type of opinion continue to grow and throw up a politician (in the 2016 or 2020 election) who will capture the imagination of voters about getting serious about deficits. I think there's some chance this might happen. (Not some ideal free-market type, but someone who will get voters to address social-security, medicaid and medicare.)

Just as you think Germany will finally accept "quantitative easing", the most likely "resolution" in the U.S. too will be to use inflation as a way to write off some debt. If the dollar depreciates at 5% or 6% per annum (relative to real goods) instead 3%-4%, it will add up in the long run. Debasing the currency is the way most asset-deflations have been handled in the last century, and therefore that is the most likely way this one will play out too.

I think the most likely path out of this will consist of a mix of debasing the currency, taxing the rich, and slowing the growth (but not the overall size) of government spending. [Caveat: The currency debasement is something that will happen long-term, but for now the US$ remains a "safe-haven" currency.]

I also think the focus on monetary and fiscal issues too often overshadows the structural issues. Environmentalism is still a huge threat to prosperity. Recently, Obama shot down an oil-pipeline from Canada to the gulf-coast even though it had pretty much gone through its reviews and everyone thought the final "okay" was assured. On its own, this is just one concrete. However, doing so in the face of an election tells us a lot about where American voters stand on sacrificing prosperity to the Goddess Gaia. (I don't know if a GOP president and Congress will ease up on regulations like this and bring about real structural change. There does not seem to be much public protest against this type of wealth destruction.)

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This is not in US domestic policy and the thread's name clearly state World scenarios, so I'm taken aback by the "Amerocentrism", hehe.

Those depressing scenarios apply only to the United States and Western Europe. In a World of increasing interdependence I'd like to know what you guys think about the place of not the USA or Greece or Britain, but of the individual worldwide.

I'll start. I think anti nationalism will increase and more people will chose in which country to live temporarily (rather than in which state).

Many Third World migrants will continue moving the the developed countries. Many First World tourists will decide to live temporarily in undeveloped, countries and with that, they'll have to do biz in more than one currency. Multiple currencies will continue to be used in some communities and this phenomenon will grow.

In a word, homogenization.

There will be backlashes against this worldwide liberalization. Particularly when the spiritual void is filled with new forms of revived religion such as every form of Adventism and Islam. New creatures like Scientology might arise. The internet, an instrument never before available in such massive scale, will do wonders to both promote and disprove these spiritual movements. Eventually spirituality might be hacked, understood, and converted into a proper technique (some would say Objectivism began that path, I'd say it was one of the many movements that did - the most obvious one being Psychology)

Resource "depletion" might lead to stress

Artificial Intelligence, nanotechnology, ephemerizaton, might alleviate that stress.

Just speculating here...

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