[quote=dumbrenter]
Because US is the only country with debt denominated in its own currency. All other countries have their external debt denominated in some other currency. [/quote]
That’s just not the case… (I agree it is an important factor, but many countries issue bonds in their own currencies).
[quote=dumbrenter]
This big difference is being overlooked. If Australia print excessively, then at some point their trade partners will demand payments in USD and not in Australian currency. Not a lot of people hold their currency as reserves like they do for USD, so if Aus do print excessively, there will be more incentive for external entities to dump and make a run on their currency starting a downward spiral.
Question is does/if/when the same even applies to USD?
[/quote]
You could also argue that at some point, if we trash the USD enough, people won’t want to buy USD-denominated bonds. I agree that being the reserve currency has bought us a certain amount of leeway… but not an infinite amount. There are limits on how much we can print/monetize before we experience problems as a result. That’s really all I’m trying to argue here.
[quote=dumbrenter]
[quote=Rich Toscano]
In my view the result will be rising interest rates and excessive price inflation, OR severely tight monetary policy to head those off… either way is equivalent to “things getting harder.” [/quote]
Understood, but at least it will not be a debt crisis!
[/quote]
OK, well, that’s just quibbling about semantics and doesn’t really address the point I am trying to make.
[quote=dumbrenter]
Here is where I can flip your argument against your position. The last time we devalued, nothing earth shattering happened; yes there was some short term pain, but we made through it. So why does “this time it is different” apply now and not in ’74?
I do agree that those investors/speculators who get the timing of this asset markdown right will see returns that are “quite satisfactory”.[/quote]
I’m sorry, that doesn’t flip anything. “This time is different” is shorthand for when people try to rationalize that there won’t be consequences from economic imbalances or mispricings. It doesn’t mean that every instance is exactly the same as everything else, and I never said that’s the case. There are many differences between now and the 1970s, of course. In fact the imbalances are even worse now, which does portend that the outcome could be more severe — but acknowledging that fact isn’t the same as saying “this time is different” in the pejorative sense you are implying.
Also where did I use the word “earth shattering?” In the 70s we got years of double-digit inflation, double digit interest rates, and a stagnant economy — you try to dismiss that as “some short term pain” but I think it fits perfectly as an example of real economic consequences to loose monetary policy — which I only brought up in the first place because you invoked the 1970s as an example where other people suffered the consequences instead of the US.
Again, my original point was this — you said (paraphrased) “The US can print money to buy its own debt, so what’s the problem?” The problem is that monetizing huge amounts of debt has historically led to serious consequences. Just because we are getting away with it at this brief point in time doesn’t mean it’s a long term solution.
