The end of the world (as we know it)

Posted on September 13, 2010 by Chuck

Endless money forms the sinews of war,. Marcus Tullius Cicero 44 B.C

Normally not given to pessimism about America, we are a strong people in a rich land but our political class has set the foundation for disaster.

The Federal debt stands in the Trillionss with another $110 trillion in unfunded Medicare and Social Security Liabilities.

The Peoples Republic of China now holds about $850 billion in U.S. Treasury bonds, most of it quietly moved over the past few months into notes maturing in less than a year.

The ability of a nation to borrow and to finance its debt and other obligations, such asmaintainingits defenses or fighting a war, is as much based on trust, the expectation that one will be paid back, as it is based on economic prowess.

What might the end of historys greatest democratic republic look like?

At some point in the near future, a rapidly rising China may decide to challenge American supremacy in the Pacific.  The flashpoint may be over Taiwan, or it may be over the reputedly vast oil and gas riches in the disputed South China Sea area what matters is not the trigger, but the result.

Within minutes of a Sino-American confrontation, world markets believe that China will begin selling their almost one-trillion dollars in U.S. treasury bonds.  This starts a global sell-off that ripples through the entire American bond market as fears about inflation feed on investors.

Within days, concerned Americas begin to withdraw their bank deposits, money market funds and other liquid assets, such as life insurance policies, using the money to buy precious metals, durable goods and even real estate.

Within a week, the Federal Reserve would be forced to create trillions of dollars of fiat money to cover its obligations.  This, in itself, would be highly inflationary, but, with confidence in the financial markets already shaken by the events of 2008-09, mass panic may lead to hyperinflation, a phenomenon of a different kind.

Within a monthof the start of hyperinflation, the U.S. governments credibility is shot, the dollar is worthless, and, most importantly for national security purposes, the U.S. cannot even secure fuel for its military, essentially shutting down what was the worlds most powerful military without a shot being fired.

Beginning to pay down our massive Federal debt will take both political discipline and a patient public.  This will be difficult, but not impossible.  The alternative is almost unthinkable.

Chuck DeVore is a California State Assemblyman. He is a lieutenant colonel in the U.S. Army (retired) Reserve and served as a Reagan White House appointee in the Pentagon. He coauthored the novel China Attacks. He can be followed on Twitter @chuckdevore and his Facebook account is facebook.com/DeVoreForCalifornia.

Another point of view - http://www.endofamerica90.com