Barack Obama and the U.S. government have called for a “peaceful transition” in Egypt, in response to massive protests, riots and escalating anarchy. But I wonder if President Obama is taking notes? I wonder if he realizes just how close America is to facing a similar crisis that could result in riots, revolt in the streets, and economic paralysis. I wonder if President Obama would act much different than President Mubarak in Egypt. So far, small signs hint that Obama might turn out to be just as intolerant to dissent as Mubarak.

Think it couldn’t happen here? Think again. Let’s review the economic crisis that America faces at this very moment. Just in the days since Obama’s State of the Union speech there have been numerous signs that the U.S. faces an economic Armageddon. Dark storm clouds are fast approaching:

• The U.S. budget deficit is far more than even economic experts imagined.
• Unemployment is up yet again — far more than the experts projected.
• Social Security shortfalls are bigger and have happened sooner than any expert predicted — a decade sooner.
• Fourth Quarter GDP was lower than projected — and even the figure released was merely the result of the Fed printing fake money 24 hours a day, to create false consumer confidence, to prop up a U.S. economy that is falling off a cliff.
• The foreclosure crisis is deepening beyond what any expert imagined. As a result, real estate prices are falling even further, thereby threatening not only consumer spending, but the very survival of major banks.
• Inflation is skyrocketing on the two things that matter most — food and energy prices. One more disaster — perhaps the fall of Egypt, leading to an oil crisis — could lead to a hyperinflation that could turn America into a combination of Zimbabwe and the Weimar Republic.
• We already face economic Armageddon on a state and local level. U.S. cities, counties and states are teetering on the verge of bankruptcy. Their grave financial condition is the result of massive unsustainable spending and debt, caused in large part by irresponsible public employee salaries, pensions and health benefits. The worst part of this crisis is that the stimulus money is gone and the federal government is bankrupt, unable to bail itself out, let alone the cities, counties and states.
• There are early signs of revolt and anarchy here in America — with a record number of policemen shot and killed during a two-week period in January.
• The Middle East threatens to turn into a powder keg that could lead not to democracy, but to radical Islamic control of many Arab countries. This grave new threat to America, American interests, and the survival of our ally Israel, would lead to more military spending and a potential oil crisis that could engulf and overwhelm the U.S. economy. In our current vulnerable economic state this tragedy could set off a worldwide economic panic.
• Japan’s credit rating was downgraded on what most economists agree is a disastrous slide toward oblivion. Japan’s debt is so huge it can never be repaid. As one famous economist describes the crisis they are facing: “Japan is a bug in search of a windshield.” Japan’s impending implosion could also trigger a worldwide economic panic.
• Spain just announced unemployment of over 20%. Not only does this news threaten the survival of the EU, it also drives a stake through Obama’s strategy for saving the U.S. economy by creating green jobs. Spain proves there is no market for green jobs. The whole idea is a mirage created by leftist progressive politicians desperately grasping for straws.

Can you imagine that all of this toxic news has occurred in only the few days since Obama’s State of the Union?

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On August 24, I posted some data and analysis on yield curves for high-grade corporate bonds since the beginning of 2008, seeking to determine whether changes in these curves are consistent with the hypothesis that the current economic crisis has given rise to regime uncertainty. If it has done so, the yield curves should display increased spreads between the period immediately before the financial panic in the latter part of 2008 and the period since mid-2009, when the extraordinary volatility of the bond markets had ceased.

A reader of this post, Chris Lemens, commented: “I would imagine that, if the yield curves for both private and federal bonds moved similarly, that would mainly tell us about inflationary expectations, not regime uncertainty. (Well, inflation is a kind of regime uncertainty, but you know what I mean.)”

Here, I respond to Lemens’s comment, which raises an important issue, inasmuch as economists commonly interpret a steepening of the yield curve as indicative of increased inflationary expectations and nothing else.

First, one should appreciate, as Lemens does, that changes in expectations about future inflation may themselves reflect changes in regime uncertainty. If, for example, bond traders came to expect a transformation of government policies that would entail a substantial further attenuation of private property rights, they would also be likely to expect that in the future the rulers who preside over the new economic (dis)order will find themselves in serious economic trouble. (Economies without fairly firm private property rights do not work well.) Perhaps the most time-honored of all government actions to escape from such difficulties is the issuance of more and more new money, to be used sooner or later to pay the government’s bills; and the virtually inevitable consequence of such large-scale monetary effusion is a rising rate of general price inflation for newly produced goods and services, along with a diminished rate of real economic growth, perhaps even economic contraction.

So, increased regime uncertainty may give rise to increased inflationary expectations.

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