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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: GST who wrote (48207)	12/27/2005 1:58:23 AM
From: Kailash	Read Replies (1) \| Respond to of 110194

Well, I guess that's why a lot of people are worried. If you're relying on credit as an economic strategy, at some point the question is going to be raised whether you will be able to pay back the loan. The larger the loan, the greater the temptation -- if not to default, then to reduce the debt somehow. I think a whole-sale US default to be exceedingly unlikely, and certainly not on the horizon. However, in the past three years, the dollar has declined 30% with respect to the euro, and the administration is putting pressure on the Chinese to revalue their currency upwards, so that the dollar be allowed to fall. It's hard not to notice that this helps the US by lowering the value of its debt. If the US were a creditor nation, it seems unlikely we would argue for a weaker dollar. Now, if others start thinking like this and infer that the US is actively "managing" the dollar down in order to reduce its debt burden, you should get a response, and you're quite right to argue that this response could be very harmful to the US. But we may not have a lot of options, and a slow decline in the value of the dollar may appear to be the best course forward. A predictable decline would allow our debtors to help spread the pain to others, for instance by purchasing real assets.