jg – I thought that the danger was that the foreign holders of our debt would sell these bonds, putting downward pressure on bond prices (and upward pressure on rates).
For the bond collapse to happen the foreign holders have to sell (presumably to put the assets to work somewhere else) or simply stop putting new assets into US$-denominated bonds. If they don’t deploy these here and these funds would have to go somewhere. Wouldn’t they ?
Rustico – Money can go in/out of circulation. Effectively being created or destroyed. For example, US stock holdings dropped dramatically in value in 2000-2002. The only value preserved were the relatively small amounts that were sold at/near the top. Many $ in stock value were essentially eliminated from the planet, at least until central banks started pumping up the money supply.
