When you've spend the last decade or so outsourcing your bread and butter industries like manufacturing to Asia so that you can concentrate your workforce on value added highly skilled stuff, one day you suddenly find that a chunk of your population is unemployed because either they aren't skilled enough for these value added jobs that you bet the house on or there aren't enough of such jobs to go around. A healthy population needs a good balance across the entire specrum.
While reducing your productive workforce and decimating the industries that traditionally facilitated jobs for many of the now unemployed, you are also increasing the social burden. Lower tax take from fewer workers combined with higher social burden leaves an imbalance that is unsustainable. Worse still is that you can destroy an indutry in a few short years but it takes decades to restore, if ever. An entire generation can be left in limbo and to some extend reliant upon social programs.
Decades of ruthlessly pursuing open trade to facilitate export growth for a small number of large corporations comes at the expense of the demise of thousands of smaller corporations who suddenly find their industry is the innocent victim of cheap imports. Some companies profit handsomely while many others lose everything. Wealth transfer occurs on a massive scale and it consolidated into a small number of beneficiaries.
The problem can't be resolved by just increasing your debt limit or cutting a few social programs. The systemic deline must be reversed by addressing the fundamental issues that created the problem. Opening the floodgates to free trade in a world where there is massive differences in the standard of living (and thus the cost of labour) can only translate to a shift of wealth to Asia until an equalibrium is reached. While I have no opinion on this being either good or bad, the ramification of this is that many western families will have to accept incomes that are dramatically lower than they are used to. They will also have to accept a general standard of living that is significantly less than most of us are used to.
At first it impacts a few but longer term it must impact the majority. As more and more disaffected people find that they can't make a living they become more reliant upon govt handouts. Socialist governments find support by offering more handouts and social programs which are part paid for by new taxes on those that still work (who are now all called "the rich") and also partly by borrowing. As the props get larger the problem steadily gets worse until the debt is overpowering and the workers refuse to give any more. Remember if you overtax companies quite a few of them simply say "stuff this, lets move to a more friendly country".
So while some debate if the US will or won't increate its debt ceiling, I suggest that they simply don't have any choice in the short term. Not doing so don't fix their problems and I'm not convinced that they even understand the core problem yet. If they fail to do so there will be short term ramification no doubt like the USD plummeting further and the price of oil and gold going higher but the fundamental trends will surely continue.
Americans aren't going to stop driving their cars and trucks to get around. They arne't going to majically create public transport systems as viable alternatives. They aren't going to stop eating and shooting at people in other parts of the world. Sure you can say but they won't have the money to do it but one can argue that they don't have the money to do it now but they have been living beyond their means for a very long time and will find a way to continue doing so for some time to come.
While there will have to be some recuced spending in the US and other places one needs to remember that the wealth the US citizens no longer enjoy is now filtering its way down to almost 3 billion Chinese and Indians citizens who are enjoying an increased standard of living by consuming luxuries that we take for granted. Consumption by these new consumers in Asia is increasing at a dramatically faster rate than the slow decline in the west. Remember that US are still spending what they don't have thus creating debt while the Asians are spending what they now have thus creating almost unprecidented demand. New demand peaks should be expected and thus new peak commodity prices.
Oil might take a 2quick dip in a panic but it will be short lived. Remember that although oil is traded in US dollars the vast majority of consumers who buy it don't use US dollars. As the majority of demand is outside the US any fall in the US dollar will result in higher oil prices. There is an inverse correlation.
As stated previously the AU dollar may go higher against the US dollar but this is a natural hedge against oil prices thus we should neither benefit grately or suffer greatly from oil price variation unless they are demand based and demand based increases may be what we are looking at.
SSN Price at posting:
13.5¢ Sentiment: Buy Disclosure: Held
