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The Five Stages of Collapse ... financial, commercial, political, social and cultural –
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In terms of mental milestones, we can tease apart financial collapse into a number of psychological levees that are being breached one by one. The first one to go was people's faith in home equity: that the value of their homes will serve as a nest egg to sustain them in retirement. What we have been witnessing for the past week or so is the demise of people's faith that their investment portfolio will sustain them.
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The bailout is actually going to be financed by foreign interests that hold US Dollar assets. Yes, the value of their holdings will go to zero, but they do not want this to happen suddenly. They wish to continue redeeming their US Dollar holdings for all manner of things of value, from capital equipment and intellectual property, which can be expatriated, to farmland and other means of production, which can be used in situ to grow food, mine ore, and so forth, which are then expatriated. There is some optimal function for this great unwinding, which will allow foreigners to expropriate the maximum amount of value in the minimum amount of time before their efforts to redeem their remaining US Dollar holdings stop paying for themselves in terms of the value of the available stuff.
As this process runs its course, the US will lose access to imports. Most significantly, it will find it more and more difficult to obtain the 2/3 of the transportation fuels that come from abroad, which are needed to keep the economy functioning. And that will bring on Phase 2: Commercial Collapse. That is probably what we are getting for Christmas this year, or shortly thereafter.
In the meantime, enjoy Stage 1. You will miss it once it's over.
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