“That is interesting. There’s one piece you left out in your analysis which is that the U.S. is too big to fail. There will be inflation as we print and monetize debt, but enough of that inflation will be exported overseas that we won’t fall into serious inflation. How will that work? The simplest scenario is that if we owe person X in country Y some money, we can just have country Y print up some of their currency and give it to person X. It’s one of the privileges of being too big to fail.”
It is also the reason that the Russo-Chinese bloc will inherit the international monetary peg. By 2012 citizenship already dealing with runaway inflation in energy and other commodities will have a new problem that creates hyperinflation: we’ll then have our credit rating stripped (when I said this in 2000, I was called a ‘nut job) and a new international monetary peg in the East. Guess what? When we print at that point you get Weirmar Republic or Zimbabwe. Russo-China stated this was there goal since 1993. In our elected officials hubris, we just figured they were too stupid to beat us at our own game. Such is the way of empires rising and falling.
Losing the peg will be the beginning of the end, but the game might still take longer than you think to play out. For example if we know that we are about to be stripped of “AAA”, we can effectively default at that point and start over. The new rating will reflect the fact that we reneged, but so what? Also don’t assume that the Soviets and Chicoms will have their act together. Lots of things could go wrong in that relationship.