"inflation expectations are waning fast."
They wouldn't wane very fast if the fed eased .50 next week and promised much more soon.
"...an attempt to inflate out of this morass, if it were seen to be potentially successful, would lead to a deluge of foreign selling of US assets, destroying the dollar in the process."
As I mentioned, foreigners hold around 40% of Treasury debt/bonds. If they all try to sell them, who's going to be on the other side of that trade? Not me.
Deliberate destruction or gross devaluation is what I proposed and what we would get.
The crux of my original question revolved around avoiding recession/depression here by creating beaucoup liquidity and using the resulting devalued dollars to also pay off, at a greatly reduced real rate, our trillions of debt to foreigners. Japan had no external debt and so could not benefit in the same way.
I don't know this for certain, but I think we were, like Japan in '90, a net creditor in 1929.
The primary thought is that the economy and well-being of the US might be better in a stimulatory inflationary environment than in a depression, with the added benefit of paying off our foreign debts at fifty cents on the dollar. You say it will not happen, and I don't disagree. My original question was could it happen, and I see nothing to stop it if the powers that be decide to. As to the question of if it should happen, I have no answer. However, there is a certain perverse beauty to the idea of foreigners supplying us the means of production, be repaid at a negative real interest rate, and then face competing with our suddenly cheap export services and products. |
