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Hyperinflation? No, I don't think so.

BruceMcF:

A structural imbalance of the external accounts is part of the story in all the hyperinflationary episodes that I can bring to mind, with notable examples from the Confederate States of America in the 1860's through the Wiemar Republic, through Brazil in the 1970's, through Argentina at the turn of this century.
Unless the US' trade deficit is a structural imbalance large enough to trigger hyperinflation. If the US dollar collapsed, would the US stop importing, or would it continue to inflate its currency in a futile attempt to import more than it can possibly?

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan
by Migeru (migeru at eurotrib dot com) on Thu Oct 14th, 2010 at 10:08:05 AM EST
[ Parent ]
The US has a major domestic economic crisis in that the entire finance industry is built on foundations of mortgage debt and property laws that are just about to get pulled out from under and the whole edifice may come crashing down.

I don't think we can predict what the US finance industry will look like at the end (although I'd be willing to bet Goldman sachs do well) but I really doubt they're gonna be in any position to protect the dollar at the end of it.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Thu Oct 14th, 2010 at 10:34:02 AM EST
[ Parent ]
The "lurking danger" to which I alluded is largely that of the Fed going overboard with QE directed overseas. I can see that such a development could lead to a revulsion for the US$ by other countries, but I doubt that it would. But sometimes plans go astray.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 14th, 2010 at 11:50:55 AM EST
[ Parent ]
Were oil to go back well over $100/bl., were China to retaliate for newly imposed import restrictions on their goods by dumping US$ reserves and were the Fed to persist in an externally directed QE strategy things might get out of hand. I don't think it is wise to totally discount such a possibility, especially if you want to guard against it.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 14th, 2010 at 11:55:54 AM EST
[ Parent ]
oil would go to, say, $120 fairly mechanically. China would be forced to re-evaluate against the $, the American way of life would be very negotiable indeed... a real Marshall plan for alternative energy...

Where's the downside?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Fri Oct 15th, 2010 at 04:21:10 AM EST
[ Parent ]
"Where's the downside?" -- likely will depend on where you live. In the USA the downside would be the consequences of allowing the existing financial sector to continue to squeeze the life out of the rest of the economy while we attempt to transition to a more sustainable energy regime. And German industry, especially, would not be too happy with the super strong euro, though no doubt many unemployed Germans would take great pride in its strength. So you might well see the ECB engaging in massive "easing" of its own. Hello competitive devaluations.  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 15th, 2010 at 02:01:26 PM EST
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