Saturday, April 18, 2009

Marks on Paper

Eric, at Armed and Dangerous, responds to a question regarding a 2002 blog post on the subject of imperialism and what effect the financial crisis would have in regards to the thoughts expressed in that 2002 post, which makes for an interesting Saturday morning read.  From Eric’s post titled Hyperpower and high finance.

Is this the world I’d prefer to be living in? No, I’m an anarchist. So don’t tell me I’m advocating violence and warfare; I’m simply recognizing the brute facts of reality for what they are. The U.S.’s ability to kill you and take your stuff is barely affected, if at all, by marks on bankers’ papers.

Those marks have meaning only as long as no party with over 50% of the guns refuses to play the game. So let’s consider another possibility. What if the U.S. were to default on its debt? I actually think this is a fairly likely outcome at some point; as I’ve written in Timing the Entitlements Crash, the private-debt crisis is only a prologue to what’s going to happen when it becomes obvious that the U.S. government’s finances are fucked up beyond repair. At that point, hyperinflation or default will be the only options.

There is no doubt the consequences of default would be pretty ugly all around — millions of investors wiped out, widows and orphans in the streets, and so forth. But let’s consider what all that T-bond debt to people like the Communist Chinese actually means. It means they took marks on paper that were promises to be paid back in dollars at a future date in exchange for other pieces of paper which the U.S. Government used to buy stuff. If we default, they have the marks on paper and we still have the stuff.

Posted by John Venlet on 04/18 at 08:00 AM
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