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Economic speculative fiction

This month's Atlantic has an good article on the financial house of cards the US has become. The trade deficit, lack of savings, federal budget deficit, and the housing bubble all have consequences that so far have been delayed but one day will cause an economic earthquake. (I've written a brief summary of the problem here.) But instead of writing a dreary litany of statistics to make his case, James Fallows writes his piece as a briefing for the likely winner of the 2016 Presidential election and summarizes the events of the past ten years.

One of the problems in discussing this situation is that while it's easy to show that something is wrong, it's hard to imagine how the collapse will come, because no one wants it. It's in no one's best interest to push over the first domino that will start the process rolling. Fallows article is interesting because he creates a plausable scenario and traces the consequences. As a result, he makes the current problems in the US economy seem very immediate.

It all starts in 2008, when Castro dies. In the chaos following the political transition in Cuba, a revolt is started in Venezuela against Chavez, which fails. Chavez blames the US, declares 'economic war', and halts oil sales to America. He also makes a secret deal with China that has the Chinese dismantling its support for the US dollar in exchange for favourable oil deals. After that, everything begins to go pear-shaped. A run on the dollar, oil price spikes, rising interest rates, housing market collapse, foreclosures. Fallows paints a believable picture of another Great Depression.

There's plenty in the article that I would argue against. For example, a US decline in wealth doesn't mean an ascendence of China. In fact, since most economic activity in China is driven by exports to the US, China would suffer enormously by an economic collapse in America. Others have more nitpicks. But it's still a useful read for it's ability to show how high the stakes are on this issue.


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