We won’t default. And bondholders won’t pull the plug on us either.
We can and will continue to print (devalue). The plan is to slowly inflate our way out. It will work, but how well it will work is still in doubt. It’s a tightrope act. Other currencies have a vote, but we have the big vote, due to our size compared to theirs.
The Euro was created to destroy the dollar, but that won’t work either. The Euro will destroy Europe first. China is about to head into demographic problems that will be much worse than ours.
Japan is about to come out of its demographic-caused depression and may have a decent future under these conditions.
We will all lose another 40% or so of our wealth during this process.
Some who guess right at the right times will lose less, and some will lose more. Like always.
I’m not taking a position of good or bad on this as that is meaningless. As always, the proper reaction to FED/govt fiscal policy is what matters, not whether the policy is “good” or “bad” as that is irrelevant.
You can curse the weather, but in the end only answer is to dress for it.
Other currencies make sense if you want to invest (or more likely speculate) in their economies. The traditional inflation hedges like PMs are mattress money and are the last resort when there is nothing worthwhile to invest in. But the plug will get pulled on the dollar and treasuries because there is no way to realistically restore rates to balance the risk of inflation and default. The Fed has painted treasuries into a corner, either they continue to purchase or the price collapses because as rates skyrocket we have no choice but to default.
So the theory is like you say, the Fed keeps purchasing until the perfect time to stop (40% deval). Reality is that they only make the price collapse more inevitable and more severe doing so.
>> “It will work” <<
.
About as well as a box of “instant water” pills.
As soon as our ‘creditors’ take the first pill out of the box, they know they’ve been had.
“We won’t default. And bondholders won’t pull the plug on us either.
We can and will continue to print (devalue). The plan is to slowly inflate our way out. It will work, but how well it will work is still in doubt.”
I agree we won’t default, that is because our debt is in our own currency.
I agree “the bondholders” won’t pull the plug because the bondholders are two entities, the fed and China.
But I think that IT WILL NOT WORK.
I say that because yes you can rig a market if you are the only participant, but much like the London Whale of JP Morgan, you can never unwind the trades if you are the only participant.
JP Morgan’s London Whale thought he could not lose because he could always rig the game by simply buying more of his underwater positions in an illiquid market. This worked until he could buy no more. Unwinding the positions was a complete disaster.
The federal reserve is thinking that, they can rig the market to zero interest rates and if interest rates tick up a bit, they can deal with that by buying more securities.
However, if they unwind the positions (as they must eventually,) all hell is going to break lose.