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The Archdruid Report

Joined
2/7/08
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3,261
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I'm an ardent reader of the The Archdruid Report, which comes out every Wednesday night. Over the past few weeks the Archdruid has been sketching a fictional (yet plausible) scenario of the collapse of US military and economic power. The 4th installment just came out within the last hour. It is riveting reading.

As the world began to grapple with the fact that the United States was no longer the world’s strongest nation, investors began selling dollar-denominated investments. The selling began in the most risky kinds of speculative paper, but spread rapidly from there, sending the dollar down hard. Frantic attempts by central banks to stop the collapse crumpled in the face of a self-feeding panic, as investors all over the world and in America scrambled to get out of the dollar at any cost. As the dollar plunged against foreign currencies, the price of gasoline shot upwards to $12 a gallon and kept climbing, and many other imported goods became unavailable at any price.

Then, a week before the signing of the treaty, one of the nation’s biggest investment banks went broke. Its traders had used inside knowledge of US policy to take huge positions in derivative markets that would pay off once regime change took place in Tanzania. The possibility that the US might lose had never occurred to them, and the unhedged risk left them hopelessly in the red. Bankers hurried to Washington, only to find that printing trillions of dollars for a bailout when the dollar was already in freefall was not an option. The following Friday, after markets closed, a grim-faced executive from Goldman Sachs announced that her firm was bankrupt and would go out of business. Over the next six weeks, US stock market averages lost a third of their value, erasing tens of trillions of dollars in paper wealth, and eight other major financial firms that had been considered too big to fail failed anyway.
 
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