Every dollar not thrown under a mattress has to come back somehow. As the size of the deficit grows, the government might need to pay higher rates to convince the money to be put into US bonds, but I think the deficit and debt have to get pretty high before the rest of the world literally doesn't want US dollars. I'd imagine that would be the point where hyperinflation kicks in. Right now, foreigners are afraid to lend to Americans and American companies, but are still willing to lend to our government. When they are no longer willing to lend more to our government, that's when I see hyperinflation as a likely outcome. The big problem with that idea is that so many of us are self employed, etc, and not eligible for unemployment at all, so extending benefits or increasing them does us no good.
Not sure what it means, but a government can always say hey you know all that debt I issued sorry can't pay it back and by the way, all pension money will now have to be invested in these nice new shiny government bonds paying 5%. Can't force foreigners to invest in new bonds and that was my point.
You expect a collapse of $400T in derivatives? My understanding is that the notional value of all derivatives is around $650T and that 66% of them are interest rate swaps. The only derivatives that I'm aware of that are a problem are credit default swaps, as we saw with Lehman Brothers. But, CDSs only amount to 10% of all derivatives, about $65T and I don't see all of them going into default. So, where's this $400T coming from and how does any of it lead to a default on government debt when the bulk of that are treasury bonds and notes?
Sure, they can control the money supply, but that's only one half of the monetary deflation equation. The other half is credit. On that side they can only control the interest rate, but they can't force lenders and borrowers to enter into agreements based on that rate. And, they certainly can't control the bigger problem; asset deflation.
Whatever deflation that comes will be temporary(how long 'temporary' is I have no clue). the Fed has a vast amount of tools and the expertise to fight it, the austrian economists live in a fantasy textbook world where this garbage financial system and households loaded with debt can survive deflation but common sense tells it cant hyperinflation wont happen either. a 70's repeat looks more likely
If there is hyperinflation.....the answer is simple....Just like they do in the third world countries.... Raise the monthly pay of congressmen.... Problem solved.....
totally. nice good inflation seems to be a best tool to even things out. pay debt and wages with inflated dollars - after few rough years things will be ok...why not?
Well, I agree that today's financial system became garbage the instant Nixon took us off the gold standard. The idea of a reserve currency not being anchored to a fixed unit of something is ridiculous. Also agree with a return to a 70's-style stagflation. But, I think getting there would mean another episode of widespread bankruptcies like those that swept through the country due to the deflation that occurred during the Great Depression. I do agree that hyperinflation is out of the question though. This past weekend was a political necessity, but nothing was going to happen while Bush is still in office. I also don't think the G20 wants to put a gun to Obama's head, which is why they're going to give him some time to establish his cabinet and lay out his policy for turning the country around. If anything, the meeting next April will be an assessment of that. But, they simply need to start working towards a new monetary system for the long haul.
Of course no one knows for sure, but I'm skeptical of this time around simply being a rerun of the '70s, if for no other reason than the systemic problems plaguing us now are unparalleled in our history in terms of scope and size, and certainly much different from the issues that led to stagflation in the '70s. I'm not saying we won't get that, but I have to think that given how much more massive our economic and debt imbalances are than at any other time in history, the outcome will be much worse.
Oh yes they can. They can print more than enough money to offset credit and trust dissipation. What would happen if the fed printed 100T of US dollars and paid off the national debt, then distributed the remaining 90T to everyone? IKEA tables would cost $2000 instead of $20. That certainly looks like asset inflation to me.