How high should inflation be and how long should inflation be elevated "to inflate their debts away"?
It is the general principle we should be fully aware of, that as a creditor we want stable prices or deflation, and as a debtor we want inflation.
Suppose Sam wants to eat 5 oranges, so he borrows 5 oranges from Zusuki.
Later Sam repays Zusuki with 5 oranges so the debt is paid and they are even.
Suppose instead of borrowing 5 oranges from Zusuki, instead Sam borrows $5 bucks to buy the 5 oranges.
Sam eats the oranges, but a year later with inflation it now cost $5 bucks for only 3 oranges. Sam pays back Zusuki the $5 bucks, which buys a lot less now. In that sense, Sam repays his debt with worthless dollars compared to before. That is what we really got to know.
Now in the real world, and especially in this case when we are talking about the Americans, it is more complex and there are various factors at play.
The Americans enjoy dollar hegemony.
Back in the Age of Imperialism, the top European power served as the leader and that country's currency was accepted as the reserve currency. That system of respect, cannot think of another word at the moment, was followed for several hundred years, and after World War 2, American being the top power, it was the US Dollar turn to be the reserve currency.
To make a long story short, in today's world, after Nixon took the dollar off the gold standard in 1971, the Americans can print their money to pay off their debts.
So fast forward to today, and that is where this story becomes really complicated.
1. The Americans want to preserve their dollar hegemony, because they can pay off debts or buy stuff simply by printing money, from the printing press.
2. However, if they do that, people will lose faith with the dollar as the reserve currency and sell off their debt. Remember the oranges? Because printing money causes inflation and inflation favours the debtor not the creditor like Zusuki.
3. What the Americans really want, is contradictory. They want to preserve dollar hegemony above all else, but they also want some debt relief. Haha! Not sure how can they pull that off.
Remember that whack Miron report, where there was this plan, and part of that plan was an idea of a 100 year US Treasury Bond that paid no interest and the Trump administration was going to force others to buy, such as the Japanese. Well, the problem there, was that was essentially asking for debt relief. That is no different than when some African country asks China, saying they cannot pay, please give us debt relief, the Chinese say sure, then they do the coffin dance in joy. Happens all the time.
Now here, is where the story gets even more complicated and interesting.
I was reading an article from Bloomberg, discussing why it was so hard for the US Congress to bring their government spending budget back down to pre-pandemic levels.
First thing it said, when looking at US Government expenses, that interest payments on the debt, is already at 23% of the total US budget.
HAHAHAHAHAHAHAHAHA!
All that means is that when the US government collects $4 bucks in taxes or gets $4 bucks from Jerome, immediately they got to give $1 dollar to the 1% for the bond interest payment, then distribute the remaining $3 bucks on the various spending programs for the unwashed masses.
Obviously, this is not so good.
So when we hear those words, "imbalances", or the twin deficits, the US trade deficit and the US budget deficit, that is what we are talking, those details.
Of course, these "imbalances", they blame on China, some people do.
The truth will set us free!
