America The Bankrupt (Jan. 17) Revisited (March 21, 2005)

On the domestic front:  The new bankruptcy reform bill may be a trigger for America’s bankruptcy.  The new bill makes it more expensive for someone who has no money to file bankruptcy.  Everyone mired in debt is now under the gun to file bankruptcy under the current scheme before the effective date of the new legislation in 180 days or to forsake the opportunity.  Debtor bankruptcy attorneys will be doing a land-office business filing petitions in the next six months.  The credit card industry that benefits from usurious interest provisions and late fees is protected by the new legislation.  However, the very industry that provided the “crack cocaine of the middle class” (Feb. 7) now may be hoisted by their own petard.

On the international front:  Japan, China and South Korea are approaching one trillion (T) in Yankee debt.  Japan is looking askance at China and South Korea; China at Japan and South Korea; South Korea at Japan and China.  Europe is looking East then West then East then West the East.  Each player knows that pulling the plug will produce devastating economic consequences; not pulling the plug will produce devastating economic consequences.  What does game theory suggest?  One country will concoct a convenient domestic political crisis to diversify out of American dollars or to simply quit acquiring dollars or American debt.

International Economic Seismic Activity (IESA):

Player:        Stake (Bs): Anxiety:

Japan         701.6  March 12-Prime Minister Koizumi seeks “diversity”

China          194.5

U.K.            163.0

Caribbean    92.5

Korea           67.7  Feb. 22- Central Bank thinking about foreign currencies

In addition, the Producer Price Index (PPI) is stirring and soon the Consumer Price Index (CPI) will accelerate in response.  The price of oil is driving up the PPI (John’s dear tractor is more expensive to fuel) and also the CPI (Jane’s dear SUV is more expensive to fuel).  Gas may hit $4 a gallon.  The Fed must raise interest rates to stave off inflation.  With inflation on the rise, the nominal interest rates must rise even more to provide a real rate of return.  Those half dozen Americans who have the discipline to save also have the knowledge to understand a ROI (return on investment).  The rising interest rates will tank the bond market.  The stock market is tanking of its own excess.  And few are concerned with domestic spending.  The body politic needs life support.  Congress will soon need to pass a Crisis Budget (CB).

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