I don't think that would ever happen. I wonder if there are historical cases in which a country with the authority to print fiat currency has defaulted on their bonds. If it has happened, it has been rare. It's less embarrassing to just run the presses a little longer than to not pay the bondholders.I hate to say it but there is a chance (albeit very small) that Uncle Sam may default on the trillions of dollars it owes.
Pretty much all the other significant, long-lasting deflationary periods in U.S. history had their roots in eras before the government could "fight" deflation by running the printing presses to introduce "anti-deflationary" monetary pressures on the economy.Hyperinflation has never occurred in this country, but deflation has frequently. It's not hard to see the evidence.
Strange how folks willingly can believe in hyperinflation, but dismiss low Treasury interest rates - not unusual historically - as a bubble. OK 0% bills is odd, but that's just extreme stress in the credit markets. If you've got a few billion you don't want to lend you have to park it somewhere.
Hyperinflation has never occurred in this country, but deflation has frequently. It's not hard to see the evidence.
Dunno about Zimbabwean style, but I am old enough to live through periods of 14-15%/year inflation. My first morgage rate was 14% FHA (30-year) in 1980. I thought we were lucky to get in at that rate, because a few months after we closed, it jumped to 16%. My credit union at work paid double-digit interests for a while. My employer gave 6-month raises so people wouldn't jump ship.
The US has a HUGE advantage over other countries: we get to repay our debt in our own currency, the dollar (foreigners clamor to lend us money!). And since we are the ones printing the said dollars, defaulting is very unlikely. We just print more! Hence hyperinflation is the more likely outcome.
I agree this is a huge advantage to the US. But since we have a moved to the worlds biggest debtor nation, I can see the US dollar being replaced by the Yuan, the euro, or a barrel of oil.
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I am very familiar with the Eurozone and its economic policies and believe me, I would not buy a single 30 year bond from any Eurozone government. Europe has the same long term debt problems we do, but worse. So I personally don't see the Euro take over the dollar as the reserve currency of choice.
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As for the Yuan, I think it could become a real contender the day China becomes the world's largest economy. But they still have some ways to go before that happens and that gives us some time to get our act together. I know, the doom and gloomers are going to get irritated with my enthusiasm for the dollar...
I don't profess to know what currency will be the winner, and I am not ready to write off the dollar. Even if it deteriorates, hopefully it won't be overnight.
However, my philosophy always has been to hedge. If you try to be 100% right, you might end up being 100% wrong. How many times have I told the story of a couple of my friends going to 100% gold coins in the 80's? Brrr... The thought gives my goosebumps. I can live with myself (and my portfolio) if I am just 30% wrong, or perhaps even 50% wrong.
I never trade currencies, but have bought commodity producers in Canada, Brazil, and Australia. Hope that helps.
Diversify, baby, diversify...
I wonder if there are historical cases in which a country with the authority to print fiat currency has defaulted on their bonds. If it has happened, it has been rare. It's less embarrassing to just run the presses a little longer than to not pay the bondholders.
Some people insist that the Confederate States of America was a separate country between 1861-1865 in North America. The CSA had hyperinflation and defaulted on bonds that were placed in the European market. There are numerous economic studies on the CSA.
I don't know if you could say they defaulted on them, since the CSA "went away" before the bonds were due to be paid off.
An understatement if one ever existed.The CSA case is interesting, but I'm not sure it directly applies here.