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The Nomad Economist
Premiered Aug 7, 2022
Have you ever wondered why countries can’t just print more money to off their debts. or to feed the homeless or fix unemployment, or any other issue for that matter.
The short answer can be summed up in just one word… inflation. Inflation is defined as “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of the currency.
Technically we could potentially resolve our debt problem in that way, but it would lead to much bigger problems. Primarily, it would result in hyperinflation .With trillion new US dollars in international hands and over a trillion of that in China alone–a dramatic increase in national income everywhere except the US.
That income spike would cause aggregate demand for goods purchasable in US Dollar to soar. Merchants would naturally respond by increasing the price of their goods, re-stabilizing the real value of the dollar. The consequences of such a series of events would be catastrophic.
The purchasing power of the dollar would decrease enormously. This would place strain on American buyers who now have to pay more for goods without the higher income that China has received and thus cause a recession that would dwarf that of 2008.
Unemployment would spike, as many firms would find it advantageous to migrate to China and elsewhere where there is new demand for their products. Meanwhile, the People’s Bank of China, for one, would be pissed because, even though they now have more dollars than they did before, those dollars aren’t worth nearly as much as when they sold that debt to the US.
Whereas before $1.3 trillion could have bought China, say, 200 aircraft carriers , after inflation of this magnitude , it might only buy them 20. And we know that China’s in this for the aircraft carriers. They would begrudgingly buy those 20 carriers and haul them across the Pacific to vent their frustrations against our now-decrepit Treasury in person.
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Meanwhile, we’d be firing bows and arrows from canoes like those island people that went to war with the US in that British movie.
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