“The most likely scenario is the dollar will lose reserve currency privilege. There has been increasing cry’s from around the world on this recently. Actually this will devalue the dollar as much as hyper-inflation just technically we will be having deflation with massive devaluing. ”
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Uh, this strikes me as a contridiction. We’ll have hyperinflation from the world wide dollar dumping and deflation because of devaluing? If the dollar loses reserve status, it is nothing but inflationary for the US. Even if assets continue to deflate, prices on consumer goods will skyrocket. No one will export anything to us anymore, so we would face severe shortages, and the exchange rate on currencies would push up the prices of what few things we manage to import. And everything we make here at home would be lured away by the stronger purchase power of holders of other currencies, or foreign holders of dollars still looking for any way to divest themselves of their deteriorating holdings. Deflation can not occur in this scenario. It would be worse stagflation than the 70’s. Can someone paint a similarly concrete scenario that illustrates a plausible deflation situation?
The debate whether printing and defaulting are the same or different has raged on many threads. I’m still of the mindset that massive printing IS defaulting. If you lend me $5 and I reach into a Monopoly game set, pull out one of the game 5 bills, give it to you and say “We’re square now”, you would feel like I ripped you off. Paying off a loan with money that is worth less than the money borrowed is a sneaky way to partially default. Just like causing inflation and robbing people of their purchase power is a sneaky way to tax. Our government is running out of options. Its appetite for borrowing is increasing exponentially, and the willingness of our creditors to lend us more is evaporating. They have no choice but to “default”, but they will be sneaky about it. They will have to ramp up their printing, or else there is no way to pay for the bailouts, social security, our military empire (even if we get out of Iraq, we’ve got bases in almost every country), etc. And this printing will debase the reserve holdings of other governments, accellerating the demise of the dollar as reserve currency.
