[quote]a global run on the dollar that causes people holding our hard currency to exchange it for something else[/quote]
I don’t know how likely this is to happen but it does concern me. Here’s how I see it may play out.
First, we have deflation and deflation makes it more difficult for debtors to pay their debts. We all know that many Americans and companines are having trouble paying their debts. This eventually spirals to the point where gov’ts at all levels are not collecting enough tax revenues to cover their spending and debt.
Next, Democrats control Congress and the Presidency and thereby control spending. New programs (Obama has proposed at least $1 trillion of new spending) are added that increase the debt and deficit while tax revenue continues to decline even as taxes are increased (increased taxes causing economic activity to sink further).
Finally, the debt and deficit swell to the point where foreigners are no longer sure they will get paid back in full because there is no sign the U.S economy will grow fast enough to make up for the increased spending and interest payments. Gov’t begins to rapidly print money to not only fund its operations but also to pay for the increased size of the interest payments. There is a massive run to exit the dollar and this fuels hyper-inflation.
