Worst Case Scenario

It occurs to me the world could actually end (or rather, begin to unravel) in 2012. This has little to do with Mayan calendars and what not, and more to do with the potential consequences of the unraveling of the final bubble, the bond market. In the late nineties bubble money fled from the stock market on the wake of the tech boom, into the real estate market. Real estate collapsed, and bubble money has fled into gold and bonds. What will happen when the bond market collapses? Will the gold market collapse?

2012, the bond market collapses. Many, many businesses find themselves unable to roll over their debts, and aside from those businesses politically connected enough to receive the next round of bail-outs, many businesses fail, and unemployment doubles, at least. The government rolls its own debt into a much higher interest rate, and debt-servicing beings to swallow a majority of government revenues. Those who continue to work pay out ever more taxes to finance the debt as services are reduced.

The tug-of-war over public funds intensifies to something more like a real war, as those with wealth held in treasuries pour enormous amounts of money into the political system to ensure that the idea of repudiating even a portion of the debt never sees the light of day. This further corrupts the two-party system, as increasing numbers of Americans come to realize they simply are not represented, and find any efforts to change this thwarted by the rigidity of the two parties, in the thrall of all this political money.

Riots break out at various places and time over the government's increasing inability to pay out social security, medicare, and other welfare "entitlements", the political system mostly denied to them. The democratic system begins to break down. Radical cutting of military spending results in a combination of large numbers of unemployed, militarily trained young men and resentful elements of the former military-industrial complex. Brigandry and the necessary government response (which brings many military suppliers back into the money stream) result.

This occurring all over the world, the largest country without debt problems, China, begins the process of establishing hegemony over most of Asia, and carving out sizeable spheres of influence in Africa. Most of the mainland countries fall into China's orbit without complaint. Russia and China maintain a low level of conflict over spheres of influence in the central asian countries between them. Violence erputs in Taiwan between pro-Washington and pro-Beijing forces, and China moves in to forcibly re-establish order. Either this, or a war between China and Japan, trigger war between the United States and China. The war is brief, and the US leaves just as quickly as it entered, as the American economy finally collapses completely under the strain, governments collapse with it, law and order collapses, all vestiges of civil society collapse, plunging most of the Western world into a new dark age. This assumes nuclear weapons are not a factor.

Even without them, the total break-down of the division of labor in the Western world results in a severe drop in the efficiency of the use of natural resources... resulting in unmitigated environmental disaster as people desperately try to survive in the absence of a functioning market, concerning themselves more with day-to-day survival than long-term viability.

All of this begins with the collapse of the bond market bubble. Stocks can collapse, and we're okay. Real estate can collapse, and still we're fine. But when the bond market collapses, it will affect the ability of the government, itself, to meet its own obligations.