How will it end?
As Yogi Berra said, it's hard to make predictions, especially about the future. But here are some facts that might help us imagine where we are headed:
The total value of the derivative market is now estimated to be one and a half quadrillion dollars. To put that number in perspective, it's 11 times the net worth of everyone in the world put together.. It's twenty years worth of the world's GDP. It's a hundred times bigger than it was just fifteen years ago.
In theory, paper gold is exchangeable for the real thing. (Of course - that's what gives it value.) But the amount of paper gold far exceeds the physical gold in the world, and at some point, the people who hold paper gold will turn in their chips faster than sources of physical gold can keep pace. At the first hint of default, everyone who holds paper gold will rush for the door at once. The price of gold could rise precipitously. The same thing could happen with the value of world currencies that are backed more firmly than the dollar.
Since 1982, the US has been importing more than we export, and borrowing to make up an ever-growing gap between the two. The BRICs are the largest countries that are still exporting more than they import - Brazil, Russia, India and China. They have been happy to accept dollars for their wares, but now that the dollar has been debased and propped up by the derivatives market, they may decide to demand payment in some currency not controlled by the Federal Reserve. Just this spring, the BRICs met in South Africa and issued a call for a new global currency.
The US is still a net exporter of food, but virtually all our manufactured small consumer goods are imported. Clothing, furniture, and electronics are imported. Some percentage of large appliances and automobiles purchased by Americans are still manufactured here, and about half our oil comes from American wells. So if there is a collapse in the gold market or the dollar goes south, it is small manufactured goods that will most quickly become dear. The price tags at WalMart could begin to make you think of Neiman Marcus. People who invested early in energy conservation and alternative energy will be lionized as if they had some kind of ESP.
I feel confident in predicting that this implosion of the world's economic system will precipitate a crisis for democracy. Whether it leads to a populist uprising or a tightening into a full-fledged police state depends on us. Don't count on the courage of our political leaders.