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Am I wrong in thinking that this doesn't bode well for the value of the dollar over time, and will likely cause hyperinflation?

• duxup 7y ago
  I think though the question is how does it bode for the dollar... relative to every other currency. I'm not saying it won't have any impact but the dollar has been attractive for all the usual reasons for a long time, and over the course of a lot of events that folks predicted would make it less attractive.
  • XorNot 7y ago
    To be more specific: where else is that money going to go? There's a number of small stable nations out there but none sell bonds in sufficient quantity to meet investor demand. The EU isn't a coherent enough financial sector to absorb that demand, nor stable enough. China isn't selling (and would be risky) - if you have large quantities of cash you need to park the US is still your best option unless you want to get into commodities and nothing is stable enough there.
• baron816 7y ago
  Yes, you are wrong that it will likely cause hyperinflation. Even if the Fed simply monetized that debt (which it won’t do) you might get some inflation, but nothing close to HYPERinflation. What’s more likely, as the article states, is that more investor money will go to the government rather than mortgages or commercial loans, which will slow the economy, drive up interest rates, and potentially cause deflation.
  • hylaride 7y ago
    A lot of the new bonds will replace what's already been loaned to the government, so what will matter is the delta between the interest rates on the old bonds and new ones as well as whether the new bonds have different maturity times. So how much rolling the debt over will drive up interest rates is debatable though the issuance of new debt to finance the current deficit is more likely to do that. Of course, that assumes that there are buyers for the rolled over debt. The biggest source of financing over the past 20 years (China) isn't exactly happy with the US government right now. That could drive up interest rates on the bonds and cause problems.
  • AnimalMuppet 7y ago
    Monetizing the debt won't cause hyperinflation... once. Doing it repeatedly may well do so.
• JumpCrisscross 7y ago
  > Am I wrong in thinking that this doesn't bode well for the value of the dollar over time, and will likely cause hyperinflation? Yes. The effect of federal debt on money supply is de minimis. Much more important are economic growth (i.e. money demand), lending (i.e. money supply) and rates (i.e. the "price" of money).
• wahern 7y ago
  As others have pointed out, not hyperinflation. Hyperinflation requires a pathologically broken central government. One of the things that prevents that from happening in the U.S. is that the Federal Reserve is a quasi-public institution with a fixed mandate--low unemployment, moderate inflation. (Why moderate? Because a small amount of inflation incentivizes investments and consumption by preventing people from sitting on cash.) But it would be naive to say that the U.S. could never get there. The bulwark that protects the Federal Reserve has been steadily attacked from the right since the financial crisis. The GOP almost revolted against Bush for the bail-out, and because the government was slow to respond and did so anemically the Federal Reserve stepped into the void with massive infusions of cash. This resulted in cries for the Federal Reserve's independence to be diminished. Such opponents were never forced to reconcile with the fact that the Federal Reserve saved our bacon. Elsewhere, on both the left and right, you have the constant reminders that fiscal debt can be "fixed" by inflating away the debt. If our political culture continues to internalize that notion then at some point when things become more dire we may actually attempt it. But in as much as it's a viable approach, it could only possibly work from a position of fiscal and monetary strength, a position we would surely not be in were we seriously contemplating it.
• Agathos 7y ago
  When inflation is "merely" bad, a dollar loses half its value in a few years. In hyperinflation, a dollar loses half its value in a few minutes. The former is certainly possible we decide we want to maintain low taxes and big spending after investors stop buying bonds (hard to say when that happens). The latter would mean people have lost faith in the government's ability to carry out even its most basic functions.
  • shitgoose 7y ago
    "government's ability to carry out even its most basic functions." by looking at the current political circus it certainly seems that way.