For some time, I’ve wondered what prevents the awful, total collapse that so many of my friends predict. Many but not all; a lot of people I know think the “imminent collapse” people are paranoid and even loony. And of course, they have been predicting this for many years, so even if they are right “this time,” the whole meme takes on a “boy who cried wolf” flavor, which means it will be disregarded even if this time it shouldn’t be.
But I do think it is an error to look at the United States in isolation in raising these legitimate questions.
Well, I think you’re right, but not for the reasons you offer. It’s not really a matter of “collapse is relative.”
It’s more a matter of all those other countries remaining convinced that we aren’t collapsing. And that they demonstrate their beliefs in the most convincing of ways: By loaning us their own money.
If they stop doing that, then we collapse. That was the whole fear underlying the phony “default” crisis – that if we did default, other countries would not only stop buying our debt (loaning us money) but they would call the loans they already have outstanding – by selling our debt, crashing its value, and causing interest rates to skyrocket. In other words, a failure of such belief would impose its own, far more damaging, debt limit, by preventing us from borrowing to cover the gaping hole that exists between what we collect in taxes, and what we spend.
However, pretty much everybody understands that they’d go right down the toilet with us, under the old adage that if you owe your banker a hundred dollars, you’ve got a problem, but if you own your banker a 100 million dollars, then he’s got a problem. We owe our bankers several trillion dollars.
Such precarious calculations in this enormous game of financial chicken are all that stand between us and financial and economic catastrophe. Feel better now?
And consider this: We are currently being supported by what is essentially a religious belief (irrational, baseless in fact) in the soundness of the American financial system. The American financial system is an impossibly vast complex (chaotic) system and, like all such sytems, vulnerable to what are called phase changes.
The primary characteristic of a phase change is that it is extremely rapid. Take the near-instantaneous change of water to ice. One moment is it one sort of system with certain properties but then, under sufficient stimulus, becomes a considerably different system with completely new properties.
So…combine the inherent instability of complex systems with the characteristics of religious belief, and then go read up on Nick Taleb’s Black Swan Theories.
If all of that isn’t enough to give you some pause when considering the inexplicable stability of the American financial system, well….
Let me express it as simply as I can: Everything will continue to work just fine. Until it doesn’t.