This is serious:
The blue stuff is private sector financing of the US current account deficit; the red stuff is life support from foreign central banks and SIV’s (sovereign investment funds). Brad Setser points out, as he has from the beginning of his blog, that official flows (red) are greatly underestimated; by arithmetic logic they have to make up the difference between private flows and the current account.
But the point is clear: if the US were any other country (i.e. too big to fail), we would be in the grips of an economic crisis at this very moment. Foreign exchange would freeze up, essential goods would be unavailable, mass layoffs would ripple across the land, while the dollar would sink like a stone. This would be Mexico 1994, Argentina 2001.
But it’s not, at least not right now. By the grace of central bankers and oil fund managers we in the US get to sip our latte (or in my case Darjeeling) and muse on this question in tranquility. But the dollar keeps going down, and the governments that prop us up are taking really big losses. The talk now is of Wiley E. Coyote and Hyman Minsky.
OK, this is scary, but those of us who have followed the situation have been scared for years, and yet the crisis still hasn’t come. Maybe this is another false alarm. We have been in bailout mode for a long, long time.
Still, the risk of a rupture is real. My advice: progressive people need to start thinking systematically about the political environment we are likely to find ourselves in if all hell breaks loose. What narratives, based in reality or fantasy, will make sense of this catastrophe for the general public? Who will step forward to manage the crisis? How can we minimize the risk of an authoritarian surge?
And you think you’re paranoid?