On Tue, Jun 21, 2011 at 6:06 PM, Jon Cox <jcox@experiments.com> wrote:

[..]

Regulatory structures in the US are so weak that most folks will remain in a state of nervous denial until it's too late for them. When all debt obligations are factored totaled, we supposedly owe $500k/person. I can only think of 5 options that have been used (alone or in combination) by countries that get into this kind of difficulty:

$500k!? You mean the US owes 150 TRILLION dollars? The only way you can come up with that number is by taking life-time possible future expenses and counting them as if they were to be paid today. If you are doing that, then you might want to count future income or revenue using the same method. In that case, I guess the number would be over 1.1 quadrillion (US GDP times US life expectancy), not counting economic growth.

[1] Devalue/debase the national currency. This is the easiest option of all. Most folks look at their nominal wealth, a lot more carefully than the power of those dollars in real terms. If a thief takes half the money from your wallet, you feel robbed. If prices for everything suddenly goes up, and you see bankers living high of the hog while your cash savings are eroded down to a pittance, that's inflation. Inflation can be made so mysterious it seems more like a weather pattern than the theft it in fact is. Inflation here we come. It's a given.

I know something about this. I've lived through 7 currencies. It's not the case with you.

[2] Raise taxes / cut services. This is a good way to get booted out of office, plus, it won't be enough to matter anyhow. This will get harder as we go along too, because our population is aging, and old people vote. You can rig elections and fill the airwaves with nonsense, but that's a losing game in the long run. Proposals to make big cuts to Medicare and Social Security are nothing but hot air, though we'll probably see some window-dressing.

Other governments in the past and in other countries raised taxes when needed and the world didn't end. Reagan did it, Bush Sr. did it. Clinton did it. You know the US has the highest cost of healthcare in the world. And even its public system is larger than most developed countries whole systems. You are supposedly not stupid and will figure it out after a lot of suffering.

[3] Plunder the resources of another country. Capturing the labor of populations at slave wages, and/or taking control of their natural resources is an old standby. After a while, greed becomes insatiable, which leads to chronic over-extension. An asymmetric conflict results. This either favors determined masses outright, or the Empire is exhausted trying to hold on to what it can no longer control. We've gone down this road a bit, and aren't at the end of it yet, by any means. The cracks are visible, from the Middle East, to the China/Russia gas deal, to the growing independence of Latin America, and beyond. Can plundering another nation really even be seen as a way to escape national debt anymore? When the institutions are so corrupt and outsourced that they no longer serve their so-called "homeland", probably not. That said, wars can be sold as a way to give everybody cheap fuel, but in the end, public debts only increase, rather than decrease. Profits gained though wars of aggression end up in private hands, while everybody else is worse-off than before. That's called "Mission Accomplished".

Plundering another country wouldn't change anything for you. Natural resources? You have a lot of them already. What you don't you can buy cheaply. If you had control of the saudi arabia or venezuela, you wouldn't even be able to reduce oil prices. Manufactured goods? China provides them cheaply. You have been doing that already.

[4] Borrow enough to make it someone else's problem, later. This works pretty well until it doesn't anymore, and China is growing impatient with the current arrangement. Doubling the supply of USD in about 6 months didn't help, as they get funny money in return for slave labor. The workers get increasingly upset about how the sweat from their brow doesn't translate into the standard of living they've come to expect. China can tap-dance around the problem by setting up things like a space program to boost nationalism, host the Olympics, and stuff like that. After a while though, more and more Chinese workers will want wage equity, and it simply can't go on like this forever. When the music does stop, it may not be government policy that stops it. It may be the people themselves. Everybody sort of knows this, but nobody cares to admit it, or can admit it (for fear of disappearing).

There is talk of increasing wages in China and the consequence may be higher prices for goods in the US.

[5] Default This is mostly unthinkable, but let's try A default can be disguised by claiming that one's creditors actually owe something of equal or greater value. This can be used a pretext for wiping out a official debt. Given that the complaints about how China's currency manipulations have cost the USA export revenue, the stage seems set for a maneuver like that. The natural counter-response is an escalating service embargo. This looks like a pretty good reply because the US economy is addicted to cheap Chinese labor. Therefore, to pull it off, we'd need a replacement population for the disaffected Chinese wage slaves. It would be prudent to get the ball rolling in advance, so if start obsessing over labor pool diversification, that seems like a pretty good tip-off to an impending default-in-sheep's-clothing. Who will manufacture the toys needed to keep Happy Meals so happy? Wage slaves from India will almost certainly play a role. However, once you start puling tricks like this, people catch on pretty fast. So the US will need to diversify further. One constraint is that countries tapped to supply replacement labor will be need to work against the democratic will of their own people. Therefore, the all-seeing eye will cast its gaze upon outright dictatorships, democracies name only, and much weaker nations that aren't in any position to bargain. Countries such as Indonesia, Mexico, Nigeria, Bangladesh, Egypt, and the Philippines come to mind. Is a default with China disguised as a reparation really feasible? I don't know. Maybe? The consequences would be disastrous for nearly everyone, but when power is highly centralized, and those in power feel like they can act with impunity, that's rarely a pressing concern.

A default is not necessary for the US. A lot of the alarmism is unfounded. Take unemployment down, restore growth and a lot of what people fears will be gone. Of course, a lot of what is being proposed by list of people is to do the opposite, to inflict as much pain as possible because the poor have to pay for the crisis they caused.

My central message is very simple: the real-world institutions that sustain currencies are *part* of them, not external to them. Bitcoin is no exception. Bitcoin software is not the sum total of Bitcoin as a currency. Not even close.

Liberation from terrors of central banking would be a colossal achievement; that means we should expect that every possible weakness will be exploited: from the capture of monetary policy to deliberate sabotage of servers, to vilification in the press as a "drug/terror currency", to whatever other dirty tricks people with something to lose dream up. The more threatening an alternative currency appears, the more such attacks will intensify. Whole-system thinking will then force us to draw a bigger and bigger box around what we consider to be "the currency".

Terrors of central banking is a common theme. Oh, the good times of gold as currency. We had it good in the XVII century when monetary crises, booms and busts happened because of the flow of money in and out of countries and nothing could be done about it. I like the way Argentina showed how not being able to control one's currency works, as they did in the Menem-Cavallo convertibility period. At first it is all good, but if there is any problem, you have no way to get out. Cut deficits and you have a recession and more deficits. Brazil and Argentina were in a similar crisis around 1999. Argentina had to default. Brazil let its currency float. Our crisis lasted 1 year. Theirs is still ongoing. Have an external currency and you are a slave and get hit pretty hard from time to time.

I believe that the sooner we embrace these ideas, the sooner we'll have a digital "people's currency" that's more than a play-thing. Bitcoin is a groundbreaking play-thing, but we need more than that.

I think it is an interesting intellectual exercise, but it is trying to solve a problem by looking at the solution to some problems and thinking it caused all the ones it didn't solve, then rolling it back. Andre ----- End forwarded message ----- -- Eugen* Leitl <a href="http://leitl.org">leitl</a> http://leitl.org ______________________________________________________________ ICBM: 48.07100, 11.36820 http://www.ativel.com http://postbiota.org 8B29F6BE: 099D 78BA 2FD3 B014 B08A 7779 75B0 2443 8B29 F6BE