But hey the "official" U.S. debt limit stands at 8.989 trillion as of yesterday and no talk of raising the limit nor is there any media talking head to ask, "Where's the Beef?". John

The cost of China sourced goods will go up only if they show some restraint in currency manipulation by buying less dollars and letting the yuan float, as all other major currencies do. So far they have refused to do either. So worry not - that $25 DVD player may soon go to $15.

Unlike energy, money can be spontaneously created or destroyed without changing forms (being exchanged for goods or services.)

When you buy something (like a house) and then its price drops, the money representing the difference in price is destroyed.

If we take your example forward a few steps:

The ARM rates go up by a huge amount. Millions of borrowers stop buying all products except what they need to live.

Most people work for companies that don't provide what people need to live. Nobody is buying their products anymore. Millions of borrowers who work for these companies are laid off.

Unemployed people can't afford the ARM payment anymore. They try to sell the house, but nobody else has cash either. This causes house prices to plummet, which reduces people's ability to get out of house debt by selling the house. Eventually many default on their home loan.

The lenders at first make a lot of money. The relatively few people who make yachts or Mercedes do OK as a result. As more and more borrowers default, however, the lenders begin to lose a lot of money, too. Because now the houses are worth much less, and the original borrower won't ever pay off the original debt.

However, the lender gets more money and they turn around and either use that money to lend to other people to buy homes or they take it as profit and go out and buy a Mercedes or a yacht.

What you are describing is exactly what has been happening in the US economy which is transitioning into a rentier economy in which 10% of the population owns 99% of the assets. The other 90% of the population own next to no assets and remain indebted to the property owners.


From a political economy point of view, the 10% will have effective control of all apparatus of government and will manage it to serve their interests. This is already taking place. The 90% keep running faster and faster just to stay in place and fail to understand why their effort is fruitless.


This economy is far, far different from the Jeffersonian ideal in which each citizen was a property holder and each therefore had a vested interest in the governing structure. The US is transitioning back to the very political economy that it rebelled against 200 off years ago.


The wealthy buy luxury goods and services so if you offer these goods you will do well. The wealthy also invest for the greatest return and if this turns out to be in India or China then that is where the investment flows, the factories get built, the employment increases, and the exports originate.


There is nothing inherently wrong with any of this. We are just re-arranging the chemical bonds to come up with a new molecule that contains all the original elements but which functions in a different way. This is the position of a moral relativist.


On the other hand, 10% of the population are making out like bandits and fleecing the other 90% out of their wages, their property, their communities and their avowed form of government. From the perspective of a true conservative this is an abomination, a call to arms, grounds for an attack on the ruling class and a return to the status quo.


The $800 trillion dollar question bubbles up when this state borrows, and borrows, and borrows. At a certain point the creditors have as much or more influence as the citizens, perhaps more. The creditors observe the 10% moving their funds offshore and do likewise. The result is a major economic collapse in which the 90% suffer while the 10% again make out like bandits.