America's Bankruptcy: End of the Road For A Ship of Fools, Part 1

Omega Letter According to the Federal Reserve Bank, federal insolvency is now just around the corner. And, just when clear heads should prevail our leaders have proven themselves a ship of fools without a pilot.

The context, therefore, is no longer mere paralysis but an all-out confrontation between two failing visions of the country’s future. Regrettably, either strategy will present the same inevitable economic collapse and the subsequent social turmoil that will follow as early as October of this year.

It’s now every man for himself.

On one side, the view is to slash spending immediately or we’ll end up just like Greece, unable to borrow except at unspeakable interest rates. We’re not to worry about the impact of spending cuts on jobs because fiscal austerity could create jobs by raising confidence. Really?

On the other side, an almost illogical view of printing and spending is beginning to seem sinister – as if a secret strategy is being held from Joe Public or other political fools who aren’t listening; or from those who may be now implementing their own schemes of self-interest to escape the Four Horsemen.

The closer we get to the next presidential election (November 2012), the greater the confrontation between the two sides will intensify regardless of any hope of good behavior, including protecting the country’s common good: "Whom the gods would destroy they first make mad", says the line from the ancient Greek play Medea.

In October 2012 comes the traditional annual budget vote and with it will be the ideal moment for this Greek tragedy that will not end well. This isn’t Hollywood. It will be the rest of the world, which will write this sequel for the United States of Austerity.

The entire world’s economy is dependent on the economy or trade with the United States; central banks, the global banking system, pension funds, multinationals, commodities, the U.S. population, dollar-zone economies, etc.

If the U.S. doesn’t substantially reduce government spending on a scale that it isn't even being whispered about in the halls of power - the Fed will be powerless to control the fate of the economy. Likewise, it will be damned if it dials back its printing presses with its potential for rising interest rates, or if it doesn't it dooms the dollar, and in time, triggers unprecedented higher interest rates anyway.

Everyone is also structurally dependent on the U.S. economy. Assets denominated in dollars or commercial dollar transactions will suffer a head-on shock of $20 trillion in ghost assets purely and simply disappearing from their balance sheets and from their investments causing a major decline in real incomes across the planet.

Pilotless in their ship of fools, the budgetary politicos of the United States will plunge willingly, or by force, into this unprecedented austerity and take whole swathes of the global economy and finance with it. There are three concurrent outcomes in the short term:

Read More: