They cannot run out of US dollars, ever. This implies an infinitely elastic money supply, where creating it has no impact on assets prices or inflation. The hi

They cannot run out of US dollars, ever. This implies an infinitely elastic money supply, where creating it has no impact on assets prices or inflation. The high inflation caused by that attitude would be a violation of the implicit contract with creditors and citizens. The money supply created by external banks is still controlled by the government indirectly via various levers (interest rates, buying bonds, reserve requirements etc). Defaults come in all shapes and sizes - most defaults are not a straightforward loss of all money but negotiated haircut(s) of some kind (see greece defaults rercently), similar to the gradual loss of spending power caused by inflating away debt. Inflating away debt is preferred by governments precisely because it is so hard to calibrate and nobody really notices it, but it is a dangerous game when taken to extremes and taken for granted (as the parent advocated).