Calling your attention to two recent stories, the debate over the debt limit and Russia's new moves into the Middle East, are they mutually exclusive or are they somehow connected?
Looking at the debt ceiling first, we are yet again living the lunacy where the U.S. tells its people and the rest of the world "see, we are not broke"! In a sense this is true because when all is said and done, the U.S. can incur any amount of debt required or desired because dollar bills (FRN's) can be printed or issued to pay for the debt and its service. From a practical point however, this is not true. Should the ceiling be raised to $19.6 trillion and promptly funded to that amount, we will be poking our heads over the 110% debt to GDP level.
Please don't tell me I am nuts ...because the true debt, unfunded liabilities and promises amount to more than $200 trillion ...and the GDP number of close to $18 trillion "may" include a bit of "double counting". Just assuming the official numbers are real at 110% of debt to GDP poses a problem. The problem is this, as previously mentioned 100% debt to GDP is the doorway to becoming a banana republic. And yes, there are "worse" (particularly Japan over 300%) but, we are talking about the issuer of the world's reserve currency. How can they walk through the banana republic door and still expect any respect from the rest of the world?
Moving on to the next story, a mere month after Russia began aid to Syria's Assad, Afghanistan is now asking Moscow for aid ...and they very well may receive it! But why? And why now? First, "why" is simple, the U.S. has acted like a mob owned cop enforcing only what they wanted and actually stirring the pot so that calm and peace have had no chance in the Middle East. Why now is also simple, the U.S. was scheduled to pull 9,000 of the remaining 10,000 troops put of Afghanistan over the next year. This would have left a void the Afghani government could not fill. This exodus has since been called off, maybe "harvest" season came to mind?
These two stories I do believe have some commonality. They both illustrate "power" slipping from the grasp of the U.S.. The two big sticks, the dollar and military are being seen as weakening. Can you imagine five years ago ...or especially 10-20 years ago the Russians militarily entering the Middle East? Or the Chinese importing the current tonnage of "blasphemous gold" or worse, setting up an alternative to the SWIFT clearing system?
I mention these two latest developments and ask you to look back in time because prior, it would be UNBELIEVABLE. Yet now after being in a pot of heated water, we are being boiled while people don't even question it. It's like business as usual and no one cares ...in the U.S. that is. I assure you many foreigners see this far differently than most Americans! Many foreigners see exactly what is happening, why, how and how it will end. We have gone morally, socially and financially broke slowly to this point ...now we await the "then all at once" part.
To finish, the U.S. is being respected like a banana republic who issues hollow threats. The most recent, and we still need to see the outcome are U.S. naval vessels being sent to the South Sea Islands. China has already publicly said "what in the world can the Americans be thinking?" Yesterday president Obama ordered the USS. Lassen to sail within the 12 mile international limit.
I hate to say the following but it is obvious. China is the largest creditor to the U.S.. Should they become irritated and angry enough, they could simply sell Treasury securities and cripple our debt markets. For those of you who will surely write me saying "China will never do this and even if they did, the Fed will just buy all the Treasuries sold", I say this ...and what if China sells just a relatively small amount of U.S. Treasuries ...and uses that capital to bid for every ounce of gold the West has to offer? Can the Fed "print" tonnage for delivery? How much would this operation take? $5 billion? $10 billion? Does it really matter as China can surely bid for every single Western ounce many times over with money to spare? Do not laugh at this potential as I am sure it has crossed more than one Eastern mind years ago!
Standing watch.
