Deleveraging (the reduction of borrowed money) is now what is happening in much of the world. Many countries, mostly in the developed world, had gone on a borrowing binge to the point of severe pain. Even though it is a year old, this CNBC slide show is eye-opening insofar as pointing out which nations are the world's biggest debtors as a percent of their GDPs ... see:
Biggest Debtor Nations (begorrah hint, Ireland is way out in front). And, if the United States Federal Reserve Bank had not led other national banks in keeping interest rates artificially low, the moneys of the free world would already be spiraling out of control into hyperinflation.
In other words, the spending binges that these western governments (including the United States) had been on are unsustainable and the only two solutions are deleveraging through extreme austerity ... witness the resulting riots in Greece and England ... or Weimar-style hyperinflation. The Standard and Poors downgrading of the sovereign debt of the United States is one indication that a tipping point in this process has been reached. (One wonders, after viewing this slide show, how France and Germany have escaped this same Standard and Poors downgrade from their AAA ratings.)
Nevertheless, the U.S. has only two real Hobson's choices:
1) Listen to the Tea Party folks and stop the spending binge that we have been on for the last decade (and, maybe, overhaul the tax system when this economic slowdown is over), or
2) Keep printing money until bread costs $1,000 a loaf. (The day after the recent $400 billion debt-ceiling increase, little Timmy Geithner wrote checks for $239 billion ... 90% of which were cashed by Ben Bernanke at the Federal Reserve Bank. In other words, we printed that much money in one day -- a very good start toward Weimar.)
The question now is which way do we go? Do we inflate our way out of our rapidly growing debt morass? Or can we rein in the tax-and-spenders whose only vision extends through the next election? (I do think that the only real difference between these options is that the pain of austerity is felt mainly by the younger population whereas the pang of hyperinflation is felt by us oldsters.) Seeing the recent lack of real political will in this country ... and the degree to which the Tea Party is being castigated by the main-stream media ... my (rapidly devaluing) money is still on the former option -- hyperinflation.
Yes, hyperinflation will be painful ... just as painful as austerity measures ... if not more so. But we are a democracy and our people, in their childlike naivete, get to pick their poison.
