>Why would it? The US dollar not being the world currency wouldn't drop the value of US industrial output, but it would (presuming that it dropped the value of the dollar due to reduced global demand for US dollars) reduce the value of US debt.
90% of all USD in circulation isn't even in the US borders. Isn't used for the needs of the US industry/economy. Thanks to this the FED can print, print, print into the oblivion, getting back just 10% of inflation it created, while the world gets the 90%. Ever heard the famous: “The dollar is our currency, but your problem” by John Connally, President Nixon’s Treasury Secretary, to a delegation of Europeans worried about exchange rate fluctuations?
Now the ponzie scheme grew (as they always have to) so it is not only Europeans, but also Arabs and Asians, but the days of the USD debt ponzie scheme are counted. There are just these many losers on the planet to buy into it.
Now, just imagine these additional USD coming from all over the world to the US. Hyperinflation?
And just a single simple event could cause that: Chinese tying their Yuan to gold. Who on Earth will want your t-bill backed by the most indebted government on the planet, when they can get it backed by gold and the biggest creditor government in the world?
>Which would be bad for entities with incomes or assets denominated in US dollars, but good for entities with debts denominated in US dollars, and neutral for entities whose income was dependent, say, on US output.
Right. Your debt would vanish. I think that's the only good thing from the hyper inflationary perspective. The debt is USD denominated, so yes, it makes sense. Again, from China perspective, a little price to pay to have world reserve currency instead of the US having it.
>This is neither true nor meaningful; as long as the debt can be serviced, it doesn't actually need to be repaid (and could, in fact, grow in absolute terms over time without limit without harm so long as output was growing apace.)
If we use the official government formula of calculating inflation from Ronald Reagan years we are at 10% today. We've been for at least 3 years now. And what is the return on the t-bill? Again, it might be true, that at least you know you'll be repaid even if it means you'll loose. But t-bills are in fact in a bubble territory now. What will you do when interest rates rise? If interest rates are at 7% we're talking about more than 50% of tax revenue going just to service the debt. Just to pay the premium. Over 50% of the tax revenue! And what if we have to have it at the levels from the beginning of 1980s? At 18% ? We won't even be able to service it. And in 1980s most of the debt was hold by the Americans. So the money was going back to the US economy. Currently most of the debt is held by foreigners. Can you imagine the impossibility of a political situation were over 50% of the tax revenue goes to foreigners in the middle of a financial crisis? And it is just at 7% interest rates. The FED effectively can't rise the rates. There is no way they can do it. You think this is acceptable like forever for t-bills holders?
90% of all USD in circulation isn't even in the US borders. Isn't used for the needs of the US industry/economy. Thanks to this the FED can print, print, print into the oblivion, getting back just 10% of inflation it created, while the world gets the 90%. Ever heard the famous: “The dollar is our currency, but your problem” by John Connally, President Nixon’s Treasury Secretary, to a delegation of Europeans worried about exchange rate fluctuations?
Now the ponzie scheme grew (as they always have to) so it is not only Europeans, but also Arabs and Asians, but the days of the USD debt ponzie scheme are counted. There are just these many losers on the planet to buy into it.
Now, just imagine these additional USD coming from all over the world to the US. Hyperinflation?
And just a single simple event could cause that: Chinese tying their Yuan to gold. Who on Earth will want your t-bill backed by the most indebted government on the planet, when they can get it backed by gold and the biggest creditor government in the world?
>Which would be bad for entities with incomes or assets denominated in US dollars, but good for entities with debts denominated in US dollars, and neutral for entities whose income was dependent, say, on US output.
Right. Your debt would vanish. I think that's the only good thing from the hyper inflationary perspective. The debt is USD denominated, so yes, it makes sense. Again, from China perspective, a little price to pay to have world reserve currency instead of the US having it.
>This is neither true nor meaningful; as long as the debt can be serviced, it doesn't actually need to be repaid (and could, in fact, grow in absolute terms over time without limit without harm so long as output was growing apace.)
If we use the official government formula of calculating inflation from Ronald Reagan years we are at 10% today. We've been for at least 3 years now. And what is the return on the t-bill? Again, it might be true, that at least you know you'll be repaid even if it means you'll loose. But t-bills are in fact in a bubble territory now. What will you do when interest rates rise? If interest rates are at 7% we're talking about more than 50% of tax revenue going just to service the debt. Just to pay the premium. Over 50% of the tax revenue! And what if we have to have it at the levels from the beginning of 1980s? At 18% ? We won't even be able to service it. And in 1980s most of the debt was hold by the Americans. So the money was going back to the US economy. Currently most of the debt is held by foreigners. Can you imagine the impossibility of a political situation were over 50% of the tax revenue goes to foreigners in the middle of a financial crisis? And it is just at 7% interest rates. The FED effectively can't rise the rates. There is no way they can do it. You think this is acceptable like forever for t-bills holders?