Comments on: How the US may avoid inflation: The Nuclear Option http://capital-flow-analysis.com/capital-flow-watch/how-the-us-may-avoid-inflation-the-nuclear-option.html Predicting markets with flow of funds ... Thu, 18 Mar 2010 09:04:08 +0000 http://wordpress.org/?v=2.0.2 by: John Schroy http://capital-flow-analysis.com/capital-flow-watch/how-the-us-may-avoid-inflation-the-nuclear-option.html#comment-34543 Sat, 16 May 2009 23:48:13 +0000 http://capital-flow-analysis.com/capital-flow-watch/how-the-us-may-avoid-inflation-the-nuclear-option.html#comment-34543 <p>Third World and Eastern Block countries usually default on dollar debt, <em>not in debt in their own currencies</em>. The US Treasury can pay its bonds (denominated in dollars) simply by issuing a check, which the Federal Reserve will make good by creating Federal Funds in a bank account. <br /> <br /> &#160;</p> <p>The Federal Reserve has an <strong>unlimited</strong> supply of dollars because it can create them at will. <br /> <br /> &#160;</p> <p>However, if the US had debt in Euros or Yen, then there could be a problem. But that is not the case. <br /> <br /> &#160;</p> <p>This is the big advantage of the dollar being the world's reserve currency.</p> Third World and Eastern Block countries usually default on dollar debt, not in debt in their own currencies. The US Treasury can pay its bonds (denominated in dollars) simply by issuing a check, which the Federal Reserve will make good by creating Federal Funds in a bank account.

 

The Federal Reserve has an unlimited supply of dollars because it can create them at will.

 

However, if the US had debt in Euros or Yen, then there could be a problem. But that is not the case.

 

This is the big advantage of the dollar being the world’s reserve currency.

]]> by: In Debt We Trust http://capital-flow-analysis.com/capital-flow-watch/how-the-us-may-avoid-inflation-the-nuclear-option.html#comment-34537 Sat, 16 May 2009 20:16:10 +0000 http://capital-flow-analysis.com/capital-flow-watch/how-the-us-may-avoid-inflation-the-nuclear-option.html#comment-34537 <p>What about another option: default. Defaulting on govt bond obligations is a popular tactic among other countries and is usually associated w/the 3rd World or E. Bloc. But is it possible the US might follow such a path? It seems highly unlikely now but events might escalate in the future.</p> What about another option: default. Defaulting on govt bond obligations is a popular tactic among other countries and is usually associated w/the 3rd World or E. Bloc. But is it possible the US might follow such a path? It seems highly unlikely now but events might escalate in the future.

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