4 ms·
Rich countries don't pay off debt, they inflate it away. One of the main reason for European countries to adopt the euro was to get a piece of the reserve curre
by tybris 15y ago
Rich countries don't pay off debt, they inflate it away. One of the main reason for European countries to adopt the euro was to get a piece of the reserve currency pie, allowing more debt to be eliminated without severe economic repercussions. Unfortunately, they hit a road block in the Mediterranean, where, due to poor fiscal management, more inflation would lead to economic disasters threatening the stability of the euro. Meanwhile, the U.S. cannot afford much inflation at the moment, since it would threaten the position of the dollar as reserve currency in favour of the euro. Worse yet, they have their biggest creditor breathing in their neck with increasing economic and military power, who would not be pleased by inflationary measures.
Thus begins the biggest poker game of all, in which the U.S. suddenly cares about military spending and is trying to get Europe to spend itself into an inflationary cycle. Meanwhile, Europe is trying to prevent that through severe budget cuts. Ultimately though, neither can get rid of their debt without inflation so both taking inflationary measures is the only logical outcome. China and other countries heavily invested in euros (e.g., Russia) and dollars (e.g., Japan) will not be pleased, but ultimately their wealth is heavily dependent on the economic well-being of their biggest lenders and trading partners. There will be few winners in this game.
- danielsoneg 15y ago> The U.S. cannot afford much inflation at the moment, since it would threaten the position of the dollar as the reserve currency in favour of the euro. Not buying that, especially not at the moment - Greece is doing far more damage to the Euro as a reserve currency than anything the US could do to the dollar before August 2nd, and if Greece gets its house in order, there's still Portugal waiting in the wings. What's more, the US has an inflation rate right now that's practically nil, and I suspect China's interest is in the US spending again - their bond holdings exist for the sake of currency control, not as a legitimate investment.
- tybris 15y agoObviously the euro zone is bad, but I think you're overestimating how healthy the dollar zone is. Oil supplies are dwindling, the weapons industry is losing importance, the financial industry is not what it used to be, the car industry is no longer competitive, few major infrastructure projects are being undertaken, IT is one of the few industries that is going strong, but it contributes relatively little. Europe has a healthy, productive economy to back up the euro and it's a threat to the dollar.
- danielsoneg 15y agoThe USD has a century of relative stability behind it - there have been ups and downs, but there's never been a full-fledged currency crisis, and a USD from 1911 can still be used today. The Euro is a stronger threat to the dollar than we've had in some time, but it's still a relatively new currency and it's showing strains already. There's a reasonable scenario which the Euro is a secondary reserve currency, but it's going to take some time and some drastic crises in the US which somehow don't spill to the rest of the world before the USD gets dethroned. You're right, though - the picture's looked an awful lot rosier. I don't believe there's anything concrete that assures the US's decline, but that's not for lack of trying on the part of Congress.
- Confusion 15y agoChina is buying euros and European debt by the billions. http://www.asianews.it/news-en/China-buying-Euro-debt-21897.html http://www.asianews.it/news-en/China-buying-Euro-debt-21897....
- BadCookie 15y agoHave you seen this? Looks like inflation is on its way up. http://bpp.mit.edu/usa/ http://bpp.mit.edu/usa/
- rgraham 15y agoThis reads more like a cautionary tale than a sensible way for things to operate. Doesn't that mean something?