If the US goes bankrupt can we still go to war?

I recall before the war in Afghanistan that Britain voted for war
but the Prime Minister had to go to the Rothschild Bank to
arrange funding for it.

Over here at present we just instruct the Fed. to issue more credit,
but is there a point when we have to stop doing that? If I recall
for one of those wars it was China that backed the loans, but I'm
not sure if we have a conflict with China that they will back
the loan.

Maybe I should have studied economics, but I wasn't sufficiently
mathematical back then.

I'm not even sure what I meant by 'bankrupt' either, does it mean
other countries refuse our currency, or that the value of the currency
drops a lot?

 

We can go to war as long as stockpiles of supplies hold out. Then if the war is still continuing, we have no choice but to go nuclear.

Is NATO really ready for war with Russia?
...
This is because NATO has long planned on what’s known as a “come as you are” war, which means it has the capacity to fight for only as long as the equipment and supplies last. For this reason, NATO’s strategy has always been, in the event of a conflict, to bring it to a conclusion as quickly as possible.

https://asiatimes.com/2024/02/is-nato-really-ready-for-war-with-russia/

 

The US is in a big debt and might not be able to start any more
wars or keep them going as long as they'd like to, but Germany
has been running huge surpluses for many years and might be
able to fight the good fight.

Except they can't make much steel anymore because we blew
up their Nordstream pipeline; that plan to deprive Russia of
income didn't work very well, unless the overall intention was
to damage the German economy because it was making us
look like fools.

Either way it weakens Germany as an ally.

NATO has about 33 times the GDP of Russia, and a much bigger
population so we should be able to cope.

 

Generally the fed system is supposed to discourage just printing the money as they buy the bonds back off the markets after they are sold at least once to someone else.

 

I would not talk casually about going nuclear, what if we did that with every war?

Every war seems so crucial when we are in it, but 6 months later nobody cares.

 

The US and NATO generally have never had a "no first use" policy. The policy has always been that if the Soviets overwhelmed NATO forces with conventional means, then nuclear weapons may be used. The first nukes would be tactical weapons on the battlefield, but that is a slippery slope.

I would think that the same applies bilaterally in the case of NATO and Russia. It is an attempt to ensure that between nuclear powers limited wars are fought for limited ends with limited means.

What is dangerous is US diplomats advocating regime change in Russia, because regime change might well trigger nuclear use as a version of the "Samson option".

 

Thank you, that is enlightening.

One thing you pointed out is NATO policy was written with it's original purpose in mind -
to oppose the Soviet Union. Every republic in the USSR has departed and all that is left
of the cat is it's smile.

The nukes remain and are with Russia, but it would be wrong to think Stalin and the USSR
are still threats to the US because they aren't, and the main problem now is the Military
Industrial Congressional Complex (MIC).

The MIC has one drive and that is to sell weapons, and thinking back, we were just as
afraid of the 'radical Muslims' back in 2001, as Saddam Hussein as the Taliban and so
on as with President Putin today.

It doesn't make any difference what the media stirs the public up about, whatever it is
it is made to seem like an existential crisis to us today.

 

We blew up the Nordstream pipeline? Not so.

 

A country essentially goes bankrupt when the rate window closes or shrinks to zero.

Explanation:
Governments have the ability to tax to produce revenues used to fund government operations. For the sake of argument let us assume the government under discussion has its own currency.

Governments go bankrupt when the rate window closes or shrinks to zero.

Explanation:
For the sake of discussion, we will assume this is the US government.

Governments obtain revenue through various forms of taxation. This permits governments to borrow money through the issuance of Treasury Bonds to be paid back (with interest) at a future date from the proceeds of future taxes. It is important to understand the dollar bills (Federal Reserve Notes) you have in your accounts or wallet ARE NOT GOVERNMENT DOLLARS. They are printed by a completely separate entity called the Federal Reserve. Not much federal about it. Originally these federal reserve notes were backed by gold. Money was needed to fund the civil war and the government's gold reserves were only about 20% of that needed to conduct the war. The original agreement was the US government would place all its gold reserves in a Federal Reserve vault, to which the stockholders of the FR would add an amount of gold 4X as large. This would back the original currency issued at a certain rate of exchange dollars/gold. For example, let's say they initially held 1,000,000 ounces of gold and printed 1,000,000 dollars (FR notes). Each dollar could be exchanged back for 1 ounce of gold. The owners of the FR (unknown who they are and by law the identities of the owners cannot be ascertained or made public) would then receive 80% of the currency printed by the FR and the US government would receive its 20% with an agreement to borrow from the FR's 80% to fund the Civil War. A century later, we learned the Federal Reserve never had ANY gold to put up. They just pretended they had it in the vault and all the stockholders of the FR agreed not to exchange their notes for gold for a period of time. This avoided the problem of not having enough gold to exchange for the dollars.

When the government decides it needs additional currency to fund its operations, it prints what are called Treasuries. These treasuries are essentially just loan agreements from the federal government agreeing to pay back the amount borrowed (in FR notes) on a certain date with additional percentages each year until then. For example, let's say you buy a $1000 10-year bond with a coupon rate of 5%. This means the government will pay you 5% of the $1000 (i.e. 50$/year) each year for 10 years and on the 10th year they also repay the original $1000. The term (length of time before the US government pays you back) varies depending on the Treasuries created by the US government. These are normally 6 months, 1 year, 2 years, 5 years, 10 years and 30 years. How much you pay for the bonds is determined in the bond market. If you pay more than $1000 for the bond it is said you are paying a premium. If you pay less than $1000 it is said to be purchased at a discount. If the purchaser suspects inflation will be 5% during the 10-year term of the bond, purchasing the bond wouldn't really buy him anything extra. Because even though he received an additional 50$ per year, at the end of 10-years the stuff he could buy with the total amount received would be the same as he could buy today without waiting for the term to arrive (i.e. bond matures). If the purchaser of the bond (lender) perceives the inflation rate will be only 1% then he anticipates he will make ~ 4% above inflation and will therefore be able to buy more stuff for waiting 10 years. So, this bond purchaser might decide to pay a premium (>$1000) for the bond. Likewise, if inflation is anticipated to be 10% the bond might only sell for a discount or not at all.

 

If the rate offered isn't sufficient to sell the bonds to the public (or a foreign government) then the Federal Reserve MUST BUY the bonds offered by the US government. The FR is deemed the "buyer of last resort". When this occurs, the FR takes the Treasuries and places them in their vault and adds the face value of the bond (in this case $1000) into the computer ledger of the US government's account at the Federal Reserve bank. Essentially the FR will be forced to lend the USG the dollars. It is this last method of borrowing which results in the "Printing of Money". They don't actually print the money right away, but adding electronic numbers into the computer essentially CREATES more dollars. Later on, when people receive electronic transfers out of the government account, they will place it in their bank accounts or perhaps demand actual hard currency for their wallet. So, it does eventually result in the FR having to print more dollars to ensure the currency is available. But at any point in time only a small percentage of the total supply of FR notes are in hard currency. Most of the money supply is in electronic ledgers. Printing this money essentially steals from the value of the existing currency (remember there is no such thing as a free lunch in economics). In our example we assumed a bond for only $1000 which would have little impact on inflation. It would essentially steal $1000 worth of value from the cumulative value of all the outstanding dollars. Assuming there are 1,000 Billion $ in circulation and the FR must buy 100 Billion $ as the buyer of last resort the result will be 1,100 Billion $ in circulation afterwards. This will essentially result in an immediate ~10% drop in the value of the dollar and prices will rise. It may take time for the consumer to realize the value of the money has been stolen, but inflation will set in, and prices will soon rise. "Normal or moderate" increases in inflation lag the increase in the money supply by ~2 years. Large increases in the money supply result in shorter periods of lag in the inflation rate.

It is important to understand a similar thing occurs when the public purchases the bonds on the bond market with one important distinction. Here, the money which is placed in the government's account comes from currency ALREADY IN CIRCULATION. For every dollar placed in the USG account 1 dollar is removed from the bond holders accounts and there is no increase in the total amount of outstanding currency. At least not until the bond matures and must be paid back (with interest). The printing of dollars by the FR does not occur at the time of the initial purchase and therefore results in ZERO inflation (today). Of course, 10 years down the road (perhaps 30 in the case of 30-year bonds) the USG will have to figure out a way to pay it back plus interest. They often kick the can down the road again and issue more bonds (borrow from Peter to pay Paul). If you study this closely you might be puzzled. How can the USG continue to pay back FR notes with interest if they don't exist? If the government paid off the 100 billion $ in 10-years plus 5% interest without any FR printing they would need to borrow the 5% by selling more Treasuries to the public. Eventually the outstanding currency would run out, and the public would have no FR Notes left to purchase new bonds. At that point any additional borrowing by the USG would obviously have to be purchased by the FR and essentially printed.

Politicians love to sell the bonds to the public. It means it doesn't result in any inflation while they are in office. It will be left for future taxpaying Americans to foot the bill. They will be long gone and no longer available for blame even if the public was able to identify the culprits at some later date. This allows them to buys votes today, while the impact to the voters will come home to roost at a later date. But again, there is no such thing as a free lunch and eventually the bill will come due. The politicians will buy votes today, but future Americans (and politicians) will have to deal with the impacts down the road.

All that said, let us return to the discussion of government bankruptcy. Bond purchasers aren't stupid. They know the more money government borrows or prints the higher the expected inflation will be. This results in a positive feedback situation. To simplify what positive feedback is, imagine you were in your car in the driveway. You place the car in reverse buy you aren't securely fastened in your seat. As you push on the accelerator pedal the car lurches backwards while you slide forward, resulting in your pushing on the accelerator pedal even harder. This of course causes the car to accelerate backwards even more forcefully. The overall result is a rapid exponential rise in the force on the pedal and the rearward acceleration until it hits the limit (floored or maximum acceleration the engine can provide). In essence, the output (acceleration backwards) results in an increase in input (pedal pressure). This is a positive feedback mechanical system. Positive feedback systems are unstable and will always increase without control until it reaches some other absolute limit. The same thing can occur when you are moving forward at high speed and aren't secured to your seat. If you hit the brakes lightly the slowing of the car can result in you pressing harder on the brake. This too is a positive feedback system and will result in rapid exponential braking.

If you are interested study control systems or lookup Nyquist criteria.

 

With an understanding of positive feedback and uncontrolled instability, the rate window can be understood. As government debt increases, bond purchasers expect more inflation. Their response is to demand higher return on their investment because there is more risk the money they receive will be worth less than what they loaned the USG. But this increased interest means they will have to borrow or print more money. Which in turn causes even more inflation. But there is an additional feedback path. As this inflation sets in, it costs the government more to operate. Government employees demand more money and the stuff the government purchases costs more. These two feedback paths are by definition a mathematical feedback function. As the government is forced to borrow larger and larger amounts to cover its debt/spending the rate of inflation rises exponentially. As an example, this has occurred several times. For example, Zimbabwe tried to just print to pay off their debt. This resulted in dramatic inflation. Their response was even more printing resulting in more inflation. At one point they found themselves paying millions of percent in interest and ridiculous inflation. Investors expect REAL buying power in return for their investment. You can't just print more money because it doesn't solve the problem of investor return. I have a Zimbabwe dollar which has 1 followed by 15 zeros. In other words, it is a 15 Quadrillion Zimbabwe dollar. They decided to alleviate the problem by issuing new notes which could be exchanged at 15 Quadrillion to 1 new QZD notes. 1 year later it took 14 million QZD's to maintain the buying power. Prices were doubling every few hours. If you didn't spend your paycheck immediately the next day it was worth about 15% of what it was when you were paid. This is termed hyperinflation.

The only real tool available to combat inflation is to raise interest rates. Obviously, the interest rates must be raised above the inflation rate in order to curb inflation since the investors must get something above inflation for waiting. This is where the positive feedback occurs. More debt, more inflation, higher rates, more debt, more inflation until it exponentially goes out of control until the cost of a #1 at McDonalds is $100,000 or more. But here lies another feedback path. You will often hear people complain the banks lend you money they print out of thin air. As if the banks are lending you nothing and you shouldn't have to pay interest as a result (or perhaps pay it back at all). It is important to understand banks may indeed print the money out of thin air (they place larger numbers in your computer account just like they do when the USG borrows money). But the banks are responsible for insuring you pay back the money with interest. If you don't pay it back, they are on the hook and they must balance their books resulting in REAL losses for the bank. Those who complain about the FR printing money out of thin air for the government should note they do the same thing for you when you get a loan to buy a home. YOU ARE THE ONE PRINTING MONEY OUT OF THIN AIR, not the bank. It was your request for a loan to buy a house which necessitated the increase in money supply. The bank is just the conduit in charge of determining whether you can/will pay it back. It is the bank who essentially prints the money on YOUR behalf and is taking a real risk. Inflation isn't just caused by the USG (though they are the largest borrower), it is also impacted by the amount of borrowing people are requesting. What you are paying back is essentially your portion of the inflation caused by your loan's increase in the money supply. When the bank prints your loan money out of thin air you make everyone else's savings worth just a little less. Cumulatively an equivalent effect to the amount of the loan plus the time value of the money. So, you must pay us back for deflating the value of our savings.

Increases in the interest rate encourage people (and the USG) not to borrow so much, slowing down the economy. Not that the USG seems to take the hint. Congress just keeps right on spending in an effort to buy votes. This is the other feedback path as slowing the economy lessens the amount of money the USG receives in taxes. It is this rate window which eventually closes or shrinks to zero. At some point the interest rates necessary to curb inflation will result in an economic downturn which decreases USG revenues (and increases payment on the debt) more than it buys them. There are no sufficient rates which will improve the situation. At that point governments must make a choice. Inflate the money supply without limit until total collapse or increase rates until all economic activity involving currency ceases. Either path they choose produces the same horrific result. At that point the money basically doesn't exist or is without value. My 1 Quadrillion Zimbabwe note is worth perhaps 0.000001 pennies as a currency. Basically, the value of the paper is higher. This is essentially what people mean by bankruptcy. When it occurs, the government must receive external REAL funding from other sources (or countries). The US has had to step in and bail out other countries in just such situations to avoid a Dominoe effect. It is unlikely anyone could come to the aid of the US. When countries require such assistance, invariably it comes with quite severe restrictions. For example, removing the guilty government of the ability to deficit spend. Essentially equivalent to your wife going crazy with the finances so you put her on a strict budget until you can get your finances back under some semblance of control.

Now with that all in hand, where are we now? Traditionally the tipping point is accepted to be somewhere around 200% debt to GDP ratio. For instance, let's say the GDP is 20 Trillion $ and the debt is 40 Trillion $. This is of course a 200% debt to GDP ratio. Historically this is when the window closes. To understand why, let's say your government owes 40 Trillion $. If interest rates are 10% (likely more like 10%) then it must spend 4 Trillion per year to finance that debt. But the entire country only produces 20 Trillion. In other words if the government set the tax rate at 20% it wouldn't have a penny left over to run the functions of government. Zero welfare, zero food stamps, zero defense, zero SS, zero Medicare, no roads, nothing! So realistically it would require a much higher tax rate (like the 46% it now demands from the private sector). Yet they STILL are unable to reduce their spending demands from the public sector? But this is already well beyond the suspected Laffer limit. At the tax rate where the derivative of the Laffer curve is Zero no increases in taxation will result in additional REAL revenue to the US government. If you don't follow Calculus don't worry. Essentially the peak in government revenue occurs at a tax rate where the derivative of the Laffer curve is zero (i.e. horizontal tangent).

To simplify this, with a zero percent tax rate the government revenues are obviously zero. But at a 100% tax rate (pure socialism) we know the amount of government revenue is abysmal. This is because who would go to work (certainly few) if the government taxed your pay at 100%. Essentially virtually everyone decides to stay home and collect the little to nothing the government takes in. Government would likewise cease to function with no one making themselves available to work. This is why the Socialists have to resort to forcing people to work at the point of a gun. It is why socialism isn't a viable form of economics. It does not provide for the needs of the people. The more socialism a nation has the worse off the people become. Unfortunately, this is essentially the same feedback process. The more the people suffer, the more they cry out for additional socialist programs, failing to appreciate it is similar existing socialist programs which are the cause of their anguish. This is in fact the situation we find ourselves in today. The mere mention of doing away with let's say food stamps elicits a cry of, "How would I get by if the government didn't pay for my food?". What they don't realize is the price of the food it what it is BECAUSE of food stamps and a myriad of additional socialist programs all piled on top of each other. In 2015 under Obama Walmart announced it had been tracking the amount of food purchased with EBT cards at their stores. In June of 2105 it went above the 50% mark! Anyone familiar with supply/demand curves and how it dictates pricing realizes this means food prices without food stamps (EBT) would be below 25% of current levels. Perhaps more! If you asked them, "Would you be willing to forego FS if it meant the prices for food would be lowered by 75% (or more)" they will still tell you they "need" the FS. Why? Because FS cost them LESS than 25%! They are free (as if)! Literally a free lunch... haha!!! To Americans who don't enroll in the FS program it would be a huge benefit.

Biden has increased the debt from about 21 Trillion to 35 Trillion in 3 short years. As this is an election year it holds there will be a repeat this year. This would bring us to around 40 Trillion in debt by inauguration with a GDP of about 26.5 Trillion. At this rate of increase in debt it won't be long before the 200% debt/GDP will be met. What is worse, all of his deficit spending is being monetized by the FR. This is why the inflation occurred so rapidly after he took office. Basically, printing close to 5 Trillion/year. Additionally, China is falling apart (more on that later) and is therefore dumping its US Treasury reserves. Worse is the money was spent for basically no benefit. It was wasted (IMHO) on AOC and the Squad's Global Warming BS.

 

The US Govt is little different than any other business. The USG is in fact incorporated.

To provide a good analogy let's say you have two families (the Smiths and the Jones') on your block. No offense if you happen to be a Jones or a Smith. They both earn 50K$/year.

The Smiths spend their entire 50K$ each year on essentials. They purchase a modest home within their means and watch their spending. Where possible they cut corners.

The Jones' on the other hand think it in their interest to take out loans of 20K$ per year to fund additional purchases they desire. When the debt comes due, they take out additional loans to make the payments. Of course, next year they must take out an additional 22K$ in loans in order to cover the payments and maintain their current spending levels. Everyone on the block looks at the Jones' and says, "Wow! They sure are doing great! Look at all the nice cars they keep buying and all the additions to their house. They go out every weekend to lavish restaurants. They leave large tips and take extravagant vacations. They sure are smart." By all appearances the Jones' are doing wonderful. Of course, knowing the details we would immediately recognize they are heading for a world of hurt. Eventually, the payment on their debt exceeds their income. Lenders soon realize loaning them additional money comes with a much higher risk. The Jones' end up being required to sign on at higher and higher interest rates. Eventually the amount they must pay on the debt exceeds their yearly income and the interest demanded exceeds all ability to pay and no one will give them additional funding. The Jones go to their boss and demand higher pay. But their employer informs them the amount of the request exceeds the amount they contribute. Furthermore, it exceeds the company's ability to pay. It is only then the neighbors realize it was the Smiths who followed the wiser path and were actually the better off.

The USG is no different. They have habitually followed the path of the Jones'. They eventually must resort to demanding higher taxes from their employer... We the People. They will ramp up predatory audits by the IRS. Squeeze every last dollar they can identify for confiscation. Basically, seizing property of any of value, currency or otherwise from a populous already overburdened, and overtaxed to a point where incentives to actually produce are non-existent. We can't know when they will finally break the economic back of the American worker, exceeding the ability of the People to carry the burden. We do know at the current trends, unless something is done to reign in the waste and entitlements, we will eventually reach a breakpoint. A point of no return.

But don't blame them. Blame yourselves when the eventuality unfolds. Our elected officials are doing exactly what is in their best interests. We the People have set up a system where the voters reward the politicians for providing "free food and services". The myopia of the American voters to the sight of the oncoming economic cliff is the real issue. And any potential politician who hopes to save us from what I suspect is our inevitable fate would have little hope of surviving beyond a single term in office. The pain we would have to endure should such a leader enact the necessary reforms to slam on the brakes and reverse course would far exceed any ability to communicate the need for such reforms. Notice once again the feedback instability of the system. Any official who attempts real reform will get voted out when the public feels the pain of reform. Officials who continue to take credit for free food and services, while concealing the future costs gets voted back in. The average American just doesn't even understand enough to know who to blame. Worse, these voters themselves are to blame for continuing to re-elect these same socialists time and again. Unlikely they will blame themselves and change their confirmationally biased voting trends.

As for war, the Chinese are in a far worse position.

 

if Republicans get their way, we will no longer be able to print money, some other country will have that power

 

After that exhaustive response to your question regarding governments going bankrupt, we can return to the OP regarding war. Presumably with China. China is a major player in the current situation.

In the late 1960's Japan desired to expand their economy at an accelerated pace. In order to increase exports and build up their production capabilities they of course needed to raise their level of exports worldwide. Essentially maintaining large trade gaps for an extended period of time. The dilemma? Large trade gaps result in the drop in value of the consuming countries currency. This was especially true for the value of the US dollar. To maintain high levels of trade gap it was vital the US continue to purchase their products. When the value of the dollar drops (and a rise in the Yen) Japanese goods become more expensive for Americans to purchase. This is in fact the whole point of the Forex where currencies are exchanged. The value of the dollar on the Forex will be adjusted by the markets until trade comes back into alignment (i.e. equal trade in both directions). To circumvent this Japan would go out and purchase dollars whenever the value of the dollar in relation to the Yen dropped. In essence this hurts the American worker as far as job availability but helps the American consumer through continued availability of low-cost Japanese goods. But there is a catch. Essentially Japan was purchasing dollars at an ever increasing loss. They propped up the dollar by making them scarce, but end up purchasing a large amount of dollars for well above what they were worth in an effort to build their economy on the back of the US. Of course, our politicians didn't mind since this gave them carte blanch to spend like drunken sailors. Deficits were basically borrowed from the Japanese. Eventually the Japanese found themselves holding massive debt which wasn't worth 10% of what it cost them to obtain. An enormous price for the rapid expansion of their economy. This policy forced them to hold these dollars in reserve. Spending them out in the world markets would plummet the dollar and result in Japan losing all of its customers. Exports would plummet resulting in not only massive losses on the Forex, but a double wammy as their economy suddenly took a beating from the lack of exports. From the late 1960's to the late 1980's Japan continued this economic seppuku. They were forced to hold these reserves to at least pretend on paper they were solvent. Initially they referred to the 1990's as the lost decade in Japan. When it continued for the following decade, it was changed to the lost generation.

Low and behold along comes China to perform a similar version of ritual suicide. They too decided to peg the value of the dollar to the Yuan to repeat the economic miracle of Japan. Japan was all too happy to find a willing consumer of these overvalued reserves. Japan could dump the reserves and China would hastily run out and scoop them up to maintain the value of their biggest customer. The Chinese economy beholden to the value of the dollar. Every dollar that enters China is immediately confiscated and the Chinese are issued Yuan in exchange. Along comes Biden and his idiotic economic policies. Oddly enough he has been subverted with payoffs from none other than the CCP. Biden's monetization of the deficits to the tune of what may end up being 20T$ by the time he is finished has resulted in an unprecedented drop in the value of the dollar. Chinese ability to prop of the dollar is hopeless. Other reserves in dollars are being divested. China's major trading prospects have plummeted. The lack of transparency in the Chinese economy makes the true extent difficult to quantify precisely. But it is worse than anything witnessed in recent history. Perhaps 60% to 90% drop. China has been horridly selling off assets abroad (especially in the US). They have decided to run for the exits and have begun divesting themselves of Treasuries apparently deciding to take the losses before it gets even worse. All while simultaneously undergoing a severe economic downturn. Their entire construction industry, a lynchpin for the Chinese economy is being liquidated. Virtually the only avenue for the Chinese population to invest has been their real estate markets. Understand, in China when you decide to purchase real estate you must get the loan several years in advance and begin paying on the mortgage years before the 2 major construction firms actually BEGIN to construct your property. The collapse and liquidation of their construction industry means none of these properties will ever come to fruition. This means a devastating financial loss of any gains these investors made over almost 3 decades of their life's work. An unrecoverable financial loss! To make matters worse, they were informed by the CCP that in spite of the fact these properties would never be completed, the CCP is still going to demand the entirety of the mortgages be paid off. How is that for a #$%^ sandwich. It of course makes little sense, until one looks at the traditional manner the CCP handles crises. Just force them to pay in the face of threats. Needless to say, as bad as things are with inflation in the US (which is well above the numbers given by the Biden administration) China is facing a much more serious crisis. Thank God their banking system wasn't allowed to enter that of the developed nations. This is why China is lashing out. They may make a huge mistake and decide it is now or never and escalate to war.

Remember there is no such thing as a free lunch. While China was pegging the dollar it dramatically impacted the American workers ability to obtain meaningful employment. Our Congress didn't care. It enabled them to spend without limit while putting off the inevitable inflation. It hurt American workers but it was great for the American consumers who found a flood of cheap Chinese goods on the shelves. Now that China is forced to divest in the dollar the opposite is occurring. Jobs are plentiful and many are going unfilled... but prices are rising rapidly. Unfortunately, the inflationary spending has gone to GW, DEI, Climate Change, Green Energy, etc. which is largely of little value and a waste of precious resources. The overall benefit will therefore not be realized to the fullest extent and we are suffering more from inflation than the American worker is gaining in wage increases.

 

The point isn't whether the USG can print money. The point is, we are printing so much money we are fast approaching the point where no amount of money printing will gain us any more time. It will do the country little good to print money which is worth less than the paper it is printed on.

 

we long ago past that, the thing is, so many countries benefit from us doing so, that no one cares

 

In what way do they benefit? The US dollar is the only reserve currency. It benefits the world if the value of that reserve currency is stable. The whole reason it is the reserve currency is to stabilize confidence in those countries holding US dollar reserves. If some nation, we will call Fantasy Land, has 800 B$ in US dollar reserves others are more willing to accept their currency. This allows them to deficit spend when the need arises as their dollar reserves maintain value. And forget about calling for a substitute reserve currency. The dollar is the ONLY alternative. No other country has the necessary requirements. Not even close. Even the US barely meets the necessary requirements.

 

Is this 100% a bad thing?

 

for us it is, for the other country that takes over the money supply it's not a bad thing

 

When the rate window closes what transpires isn't certain. The only thing certain is it will suck. If the government decides to just start exponentially increasing the money supply with run away money printing, there will be hyperinflation. Wheelbarrows of money will be needed to get groceries much like in 1930's Germany where it required a wheelbarrow full of cash to buy a beer at the local bar. Von Hayek received 180 pay raises in a single year and it still didn't keep up with the inflation. At years end he had lost 90% of his buying power. Imagine having to negotiate your pay every day when you come to work because your pay yesterday is worth 20% as much today? Yet he was lucky to even maintain employment due to the government's decision to print without end. Most in the private sector found their employer's ability to maintain profitability hopeless, losing their income after widespread layoffs. Without income and little job prospects those who had ANY debt whatsoever couldn't pay and lost everything. One such review of a successful German family indicated they were very stable prior to the onset. They owed less than 8% of the value of their palatial estate. The remaining principle was at a low fixed rate. Their personal non-collateralized debt was minimal in comparison to their holdings. The bank holding their mortgage went belly up. The government liquidated the bank, calling in all the bank's outstanding loans. They were given 90 days to obtain alternative financing. Of course, ALL the other banks were in a similar dilemma and weren't in a lending mood. The only mortgages available were at astoundingly high variable rates. To obtain a loan and remain on their manor they did manage to obtain unfavorable loans. Within a year these rates had risen to unheard of levels. Even with the fire-sale of all their personal possessions they found themselves in soup lines at a Catholic church, losing the entirety of their family's holdings. Few were able to pay a fraction of the previous year's value for those possessions and opportunities for work were non-existent. Even those who seemed most prepared to weather the hardship found themselves dismally unprepared.

The other option is the government might decide to take it head-on and increase interest rates to whatever is necessary. Cutting all but the most vital government expenditures. The economy will slow dramatically. Businesses will avoid financing at all costs reducing expenditures (layoffs) in lieu of borrowing. No government entitlements of any kind. No food stamps, SS, Medicaid, Medicare, roads, farm subsidies, nothing. Government workforce virtually wiped out. Massive layoffs in the government sector. Defense cuts beyond any levels of security, opting to go with what is on-hand. Perhaps a futile attempt to increase taxes, though tax reductions would be the preferable alternative. Roosevelt increased taxes to 95% and is likely largely responsible for CREATING the Depression. Without the resulting lack of incentives, it may have just resulted in a moderate recession (we will never know). The government response will determine the most appropriate actions to take. Those in the know will have a tremendous leg-up regarding the proper decision making. Either way, it looks like a huge poop sandwich, and you may have to take a huge bite. Many states and municipalities may find themselves unable to meet their debt obligations so many may find even their AAA investments vanish.

Studies of the Depression and similar occurrences throughout the world suggest the most secure strategy may be to first identify the onset in time. Consume all cash on-hand while avoiding ANY debt. For example, if you have 200K saved for retirement, 20K in credit card or other debt (car loan?), and owe 80K$ on your home you would pay the credit cards and car loan, then pay off the mortgage. With the remaining 100K spend it immediately before its value possibly vanishes (gov printing?). Purchase something of real value which is highly liquid (i.e. easy to sell like gold). Essentially this shields you from potential inflation, while at the same time protects you from having to finance existing debt at very costly rates (gov interest rate hikes?). It wouldn't hurt to use surplus funds (if there are any) to stock up on food essentials. And there will be fighting in the streets! Without exception every such occurrence has resulted in street fighting. This was true in 1930's Germany, Zimbabwe, Chile, Bolivia, Venezuela, Cuba, all of them.

 

Not so. There essentially is no money supply for anyone to take over. Even if you possessed all of the dollars in circulation (which will eventually be darn near infinite for all intents and purposes) it will have no value whatsoever. No one will accept them in exchange for things which do have and will hold value. Any entity who finds themselves holding these unbacked worthless notes won't even be able to purchase so much a bowl of soup at the Salvation army a short time after hyperinflation sets in. People will barter, they won't utilize currency for transactions. Cigarettes and Vodka were the currency of choice in the Soviet Union. Cigarettes and Schnapps in early 1930's Germany. Cigarettes and whiskey were used in post WWII Germany. American soldiers remained in Germany awaiting transport home for many months. They were allotted cigarettes and Whiskey rations in the interim. They weren't smoked or drank. They didn't require refrigeration. Cigarettes were for small purchases, whiskey for larger purchases. Of course, other items were bartered directly with some ingenuity. Point is, no one is going to take over our money supply. No one will want to. We will just be forced to start over without a medium of exchange (save cigarettes, alcohol, or other such medium).

 

We can print war money til the economy collapses.

If the economy collapses, the elites go into their lavish CoG bunkers and everyone else starves.

Either way the 'useless eaters' all die and the Highlanders can finally determine who is the one.

Whats the downside?

 

this is a new world, tons of other economies crash with us if we crash

 

Yup! I'm sure the elites in those countries have their CoG bunkers too, and eagerly await their chance for The Quickenning...

 

Many find the bond markets confusing. A hypothetical example might help.

You have saved well for retirement and have 1 million dollars saved up for your retirement. You decide to quit your job and retire expecting to live off your retirement for the next 30 years with the understanding when you quit work for several years your prospects for reentering the job market would likely result in a severe drop in pay. So, you don't want to risk your retirement in the stock market. Opting instead for a lower yet more secure (perceived) investment which provides you with periodic interest payments.

In January 2024 you purchase 1 Million dollars of 30-year US Treasuries which pay a Coupon rate of 5%. This means you are guaranteed to receive 50,000 US dollars every year in January for 30 years and then get your 1 million back in 30 years (2054). The inflation rate has been around 1% or 2% for quite some time (due to China purchases precluding the need to monetize USG overspending). So, this appears to be a fairly risk adverse investment. Just what the doctor ordered.

Shortly after the January purchase the new POTUS comes into office and starts spending like a drunken sailor. Imposing government regulations and market interference at every turn. Unable to sell such large volumes of USG Treasuries the FR monetizes 5T$ in debt (25% increase in the total debt/money supply). Inflation (caused by a combination of previous administrations over spending back as far as can be remembered reaching maturity together with the immediate inflation due to monetization of a large volume of current overspending results in a massive spike in inflation. Don't believe the 8.7% BS they put out. Compare your old receipts and you will find it is many multiples of that. I did just that with a 16 month old WalMart receipt. The result was 128$ 16 months earlier would now cost 222$. A whopping 73.4% price increase in just his first 16 months. I understand this is hardly a statistically significant sample. But that is not even close to 8.7%. They always adjust the CPI calculation to give the lowest most inaccurate result. So, 1 year later you receive your 50,000$ for your coupon, only it doesn't go as far as you had anticipated. Prices are rising alarmingly fast. Well above the 5% coupon rate.

In January 2025 others looking to purchase similar 30-year bonds realize 5% is way too low. Not only has inflation dramatically increased, China (realizing the same) has decided to sell their bonds post-haste as well. Competing for potential bond purchasers. Adding up the prospective value of each 5% coupon with the return of the additional 1$ million they realize over 30 years they will receive 1.5 million $ in coupons (spread out every year) plus the 1 million dollars back in 30 years. With inflation currently so high and the administration placing the federal government in a likely position of having to monetize future overspending (being unable to sell enough to the public), they estimate the value of these 30 years of returns after inflation will only have a current value of about 100,000$ total in today's dollars (perhaps even less). These January 2025 bond purchasers will therefore only buy these bonds at a 90% discount rate or 100,000$ for bonds with a face-value of 1,000,000$. With this understanding, how much do you think someone would pay to purchase your bonds (which mature around the same time in 2054) in the January 2025 market. The answer is perhaps around 100,000$ since they can purchase similar bonds now for much less than you paid. The prospectus for low inflation over the term of the bond has now changed and this has a dramatic effect on what you will get in return over that 30-year timespan. In essence you have lost 90% of your 1 million$ investment at the current bond market prices!

Incidentally, the bond markets are many times larger than the stock markets. Perhaps 6 times as large is my recollection. City municipalities and states also issue similar bonds to obtain the funding needed for certain projects.