Crystal Ball
If you follow me on twitter you probably understand where I think things are going. I thought I'd outline it in one place though in a format besides a URL and a snarky comment.
Where we are
America is broke, even if we had the leadership to give it the focus of the Manhattan project, the Moon landing and the Cold War this is a problem we can't solve. Don't believe me, listen to the former head of the CBO (click here for video).
Here's great coverage on 3 reports from 2 government agencies and the Federal Reserve.
How we got here
This isn't a moral gray area this is taxation (of the youth and unborn) without representation. We got here by glorifying a large central government, by apathy of the citizens and a lack of leadership in government.
Because of the Bretton Woods system and the oil peg the US dollar is the reserve currency of the world. Because of this we have enjoyed amazing economic leverage on the rest of the world. We make pieces of paper and trade that for labor and materials sent from all over the world. It has been a good deal but the terms are about to change.
What we're going to do
We could raise taxes but Americans can be a feisty bunch. We could shrink government, still that wouldn't come close to covering our debt.
We do have an advantage though. Our debt is denominated in a currency we control. We don't have to go bankrupt we just destroy our currency. The plan is to do it in an orderly fashion over the next 9-14 years. I'm skeptical; an expiration date isn't a sought after feature if you're looking for a store of wealth. Expect a massive dumping of US dollars in the future.
What this means
If your wealth is in US dollars or dollar denominated assets you might see your real wealth cut in half. Expect to buy a lot less with the same bills.
A weaker dollar means that domestic production starts to make more sense. We'll see increased manufacturing and industry in America and the jobs that come with it.
Our standing in the world will be diminished. We won't be able to exert economic pressure on other countries like we have. We won't be able to borrow or print money to feed vast military expeditions. The BRIC nations will assume control of the world if not China alone. From a perspective of defending American soil, we have 2 oceans and a friendly neighbor to the North and a well armed population. We're relatively safe.
As for domestic life, hopefully we'll just experience a shift in perspective where we are happy with fewer things. Hopefully it's that simple, hopefully it's gradual and we demonstrate we are good people with good character.
