n Fahad Zafar Obamas Chief of Army Staff said: We may have a few stressful days coming up, stressful for the markets of the world and the American people. US House Speaker Boehner says: No one wants to default on the full faith and credit of the US government, and I am convinced that we will not. The question is: Will US Treasury be able to fulfil its commitments? Harry Truman once said: It's a recession when your neighbour loses his job; it's a depression when you lose your own. An economic collapse is a devastating breakdown of a national or a regional economy. It is essentially a severe economic depression characterised by a sharp increase in bankruptcy and unemployment, often followed by months or even years of economic depression, social chaos, and civil unrest. So, if we look back into history, USAs economy in the twenties was destroyed due to different reasons. During the war, farmers were encouraged to produce quantities for which the post-World War era had no demand. The government had to step in to protect the farmers from the market forces. It increased its own money supply creating an unsustainable false rainbow of great prosperity. The market treated the new money as if it corresponded to an increase in real wealth. Investors and speculators borrowed with dramatically insufficient collateral to repay in case their investments went hay. There were numerous bank failures; most banks in the developed countries survived, as did most currencies and governments. The most significant monetary change during the depression was the demise of the gold standard by most nations. In the US, the dollar was redeemable in gold until 1933 when the citizens were forced to turnover their gold for fiat currency and were forbidden to own monetary gold for the next four decades. In 2002, the top 10 banks controlled 55 percent of all US banking assets; now, they control 77 percent of its banking assets. They are colossal mountains of risk, debt, leverage and control almost 60 percent of its GNP. A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain, said Mark Twain. In reality, the US banking system is more centralised and more vulnerable today than it ever has been before. Germanys defeat in World War I resulted in political instability and the assassination of hundreds of political figures. Its finances were heavily strained by the war and reparations in accordance with the Treaty of Versailles. Unable to raise enough in taxes to run the government and make reparations, the government resorted to printing money, which resulted in the great hyperinflation, which eventually destroyed the wealth of most of its citizens and created a political environment favourable to the Nazi party and brought Hitler into power. During the 1980s, the Eastern Bloc relied on a stagnant form of plan economy and experienced a decade long period of stagflation. It eventually collapsed from which it did not recover, culminating with revolutions and the fall of communist regimes throughout Central and Eastern Europe and eventually in the Soviet Union. The process was accompanied by a gradual, but important easing of restrictions on the economic and political behaviour in the late 1980s, including in the satellite states. Then a severe financial collapse took place in the Russian federation in August 1998. It was caused by low oil prices and government expenditure cuts after the end of the cold war. Under the prevalent situation, very few people are interested in lending Greece more money. Moody has already brought the credit rating of Greece down by three notches. A number of the nations around the world are only able to keep going because they are able to borrow huge amounts of money at low interest rates. Well credit buying is much like being drunk, the buzz happens immediately and gives you a lift. The hangover comes the day after. At this point, Greece has accumulated such a mammoth debt that it cannot possibly sustain it. It is projected that by the years end national debt of Greece will soar to approximately 166 percent of GDP. Ronald Reagan had once famously opinioned: The governments view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it. The search for debt reduction methods without raising taxes or cutting entitlement programmes pushed the Obama administration in finally catching the worlds most feared terrorist - Osama Bin Laden. Also, it had withheld some military aid to its non-Nato ally (Pakistan). However, an end to the wars in Iraq and Afghanistan may save USA approximately $1 trillion. Obama had stated: It is not going to be easy for his team to dig out of the hole that they are in. According to the IMF, USAs GDP is almost 20 percent of the worlds GDP, if something happens to it, the entire world would feel the heat. I would also advise the pilot of Pakistans economic ship to make contingency plans for a post US default future. A large number of expatriate Pakistanis working in US and Europe may move back to the country, not only brining in skilled labour and liquid resources, but also pushing the energy shortage further down. Probably, this is the time to make energy deals with Iran, in line with China Iran oil barter deal. n The writer is a Regional Director Nominee of Professional Risk Managers International Association, Lahore and Islamabad. Email: fahadzafar@ymail.com