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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: KyrosL who wrote (136125)11/28/2001 7:17:56 PM
From: patron_anejo_por_favor  Read Replies (1) of 436258
 
Foreigners hold some 2.3 trillion dollars, which is the accumulated foreign debt of America, a result of the ever growing, and by now obscenely large, current account deficit. these dollars are in essence worthless IOUs. how can that be? imagine for a moment what would happen if these dollars were to attempt to return and be exchanged for REAL US resources, which they represent a claim on. it's really quite simple...the debt would be repudiated if that were attempted. it woulbn't be the first time either that the US effectively defaults on the "promise to pay". anyone remember Nixon's closing of the 'gold window'?

This is what he meant by repudiate: prior to 1971, dollars were exchangeable for gold (which is why the price of gold was fixed up to that point). In essence, a debt incurred in dollars was payable as an obligation in gold rather than a promise to repay in some arbitrary fiat currency (ie, dollars themselves). The U.S. government halted the exchange function and went to a purely fiat system, thus if a lender expected his dollar credits to be payable in gold, it was repudiated at that point. This conveniently allowed the central bank to inflate the currency without being limited by the concurrent gold debt. As we all remember, 1971 was toward the tail end of the Vietnam war, the war on Poverty and a period of massive government deficit spending. The repudiation allowed the US to unilaterally devalue the dollar in order to welch on its obligations. The hyperinflation of the '70's and early '80's was in large part a result of this delinkage.
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