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Precisely. I understand it like this: if the United States has some $18tn of debt and it has to pay this back in dollars that are more valuable than they were
by graedus 12y ago
Precisely. I understand it like this: if the United States has some $18tn of debt and it has to pay this back in dollars that are more valuable than they were when the debt was issued, that debt load quickly becomes unserviceable. However, if they successfully inflate away some significant percentage of the value of the USD, the nominal debt remains the same but it becomes lighter in real terms.
Pippa Malmgren - correctly, I think - describes this inflating away the value of the currency (and by extension, all outstanding debts) as just another form of default, and one that has been used many times in history. It's just more stealthy than saying "we can't pay, so we won't pay" or something similar[0].
[0] https://www.youtube.com/watch?v=KBU59sY2erA https://www.youtube.com/watch?v=KBU59sY2erA
- ArkyBeagle 12y agoBut government debt is DESIGNED to be inflated away. The U.S ran a then-terrifying $2B deficit during WWII. The whole point of government debt is that GDP rises eclipse it over time. I am rather shocked that anyone can't tell the difference between the effects of mild inflation on debt and default. Debt is not a blood oath - it's just a tool. We're better off if we can use this tool and use it properly. With deflation, that's harder.
- prostoalex 12y agoInflation is not a secret, they're shooting for an average of annual 2% rate http://www.federalreserve.gov/faqs/economy_14400.htm http://www.federalreserve.gov/faqs/economy_14400.htm The markets, however, figure that out, and price that in. Which is why countries with weak currencies don't have an option to borrow in their native currencies.