What Are the Social Implications of Economic Collapse?

Email Print

by Simon Black: Is
It Fixable?



For the last
few days, we’ve been having an important discussion about the
magnitude of the economic challenges in the west; if you didn’t
read yesterday’s
, I really encourage you to do so before proceeding because
it’s important to understand why the west has truly passed
the point of no return.

Simply put,
the United States and much of Europe are borrowing an extraordinary
amount of money now just to pay interest on the money they’ve
already borrowed. They cannot even self-fund their mandatory entitlement
programs without going into the hole, and their options are limited:

Option 1:
Continue borrowing, keep the party going.

As long as
the government CAN do this, they WILL do this. Regardless of their
intentions, though, more debt only worsens the situation, creating
higher borrowing costs in the long run, and even more debt. As this
happens, the pool of buyers begins to dry up, especially from overseas.

Option 2:

The more buyers
stop purchasing Treasury securities, the more the Federal Reserve
will mop up the excess liquidity. In doing so, the Fed essentially
conjures up money and loans it to the government.

No matter what
the government monkey statistics say, this is inflationary, plain
and simple. The more money they print, the greater the level of
inflation in the long-term. Meanwhile, as foreigners simultaneously
reduce their US dollar holdings, this inflation will become more
acutely felt in the US.

Option 3:

going to come a time when the US government is forced to face its
economic reality and make some incredibly deep cuts that would be
felt across society, from Wall Street and the military industrial
complex to project housing on the other side of the tracks.

Option 4:

the debt burden is simply going to be too much, and the most obvious
solution will be to default. Politicians will make China out to
be the enemy and they will probably invent a war just to have an
excuse to default on Chinese owned debt. Americans will wave the
flag and celebrate defaulting on their enemies.

Option 5:
Economic Cannibalism

In the best
traditions of Atlas
, the government will continue its persecution of
the productive class – professionals, investors, entrepreneurs,
and skilled workers. Existing taxes will rise, new taxes will be
created, trade barriers will be enacted, and a maze of cost prohibitive
regulations will be passed.

The first option
(keeping the party going) is what has been happening for years.
Politicians make small concessions to show they’re “serious”
about fiscal discipline, cutting laughably small programs while
dumping hundreds of billions of dollars into wars and entitlement

The worse the
debt situation becomes, though, the higher the borrowing costs become,
and the worse the debt situation becomes. It’s not an enviable
position. Existing lenders will continue backing away from the US
Treasury market, giving option 1 a half-life measured in months
at best.

In the longer
term, only options 2-5 remain: inflation, austerity, default, and
cannibalism. Each of these remaining options will shake the financial
system to its core. More importantly, each of these has the power
to create widespread social upheaval.

When inflation
eats away at a family’s already meager standard of living,
when austerity eliminates the benefits to which recipients have
grown accustomed, when default vanquishes a retiree’s savings,
when high taxes make workers feel like they’re just government
serfs – this is when the real turmoil will begin:

  • Rising
    crime: devoid of a job or means to support their families, people
    will turn to crime out of desperation
  • Class warfare:
    with dividing lines drawn between have’s vs. have-not’s,
    it will become unpopular and even dangerous to be successful

the rest of the article

Email Print