[quote=DomoArigato]So we’d get some inflation which would cause the value of any remaining debt to go down, further alleviating any ‘debt crisis’. Additionally, the value of the dollar would likely go down, no? This would increase the competitiveness of American exports and likely lead to higher employment.

What are the bad things that would happen, if any? Would we just be trading fear of invisible bond vigilantes with fear of the inflation boogeyman? Maybe the only thing we have to fear is fear itself?[/quote]

How much debt do you intend to monetize and how much inflation do you expect to get?

I believe it is impossible to predict with confidence but allow me to throw out some numbers.

Lets assume that on Friday, you announce that you are monetizing $15T (the nominal federal debt) thereby creating $15T in new money in addition to $10T of existing money (M2). You have effectively devalued the dollar by $25T/$10T so each dollar is now worth 40 cents.

On Monday morning, gas will cost $10/gal and everything in Walmart will have doubled over the weekend (although the shelves are empty of anything you need as those with available cash or credit already bought everything). World trade collapses as importers and exporters find that either they are bankrupt or their suppliers refuse to honor their contracts.

Government revenue plummets as wages lag and corporate profits disappear. Government expenses, market based and indexed to inflation grow. Lenders, concerned about inflation or default, demand high interest rates. More monetization occurs to finance the government which leads to further dollar devaluation. You can trade a box of cereal for a slightly used pair of re-released Air Jordans.