Please don’t expect this to be a well formed idea, I just want to throw something to discuss. I was reading the discussion in the previous post topic and there is a point that the grave situation in US credit markets may prompt US authorities to cooperate (can’t happen without cooperation not only between Treasury and Feds, but also some invisible forces) to debase the dollar into high-inflation mode that will lighten up the debt burden. In other words just inflate out of all problems. Let forget for a moment the detail that this may fail just because the cost of debt servicing will jump much faster then the debt will be inflated, i.e. the borrower will blow-up before enjoying all the benefits of high inflation and the creditor will blow-up after enjoying all the benefits of high inflation.
I’m about something else. The bulk of S&P500 corporations are making 20%-30% of profits abroad. Quite many of them are making over 50% of money abroad. There is also many foreign corporations that do the bulk of business outside of their home country. And there is also a good tradition to use dollar and dollar-denominated assets in international trades not directly related to the dollar home country. The mercenaries around the world are also readily accepting dollars and the dollar is the best currency to trade weapons as well. Heck, even the terrorists love dollars.
What I’m trying to say is that modern capital is international by its nature and the dollar is its blood. So what could be its opinion about any plans to debase the currency?
Those who are in need of inflating out of the problem are failed homeowners, credit card debtors, leveraged speculators, exhausted consumers and some of their elected congressmen. From the point of view of the world capital they are losers, and it has little interest in losers. If the chunk of American consumers are falling off the train the capital will write them off, not bail them out. If American government will try to inflate the dollar they won’t be able to do that. If the congress will try to change the rules and force the Feds to print dollars they strangely won’t collect enough votes.
I think any dramatic change in policy can’t happen in interest of losers if the most powerful of the world do not cooperate. And losers won’t be able to win any policy war against the big capital because… because they are losers