There was this Dick Morris email I got today that was a link to a Stansbury research article. The article says that the dollar is going to collapse, and the debt is the reason.
Is that true?
I felt that way myself until recently, but now, I'm not so sure.
If debt is the reason, it is a strange reason. I wrote a post in 2011 linking to this site, which describes the debt situation at that time. Most of the debt at that time was held by private investors. A significant part was just government trust accounts. These trust accounts are just accounting entries. The numbers mean little, as far as I can tell. All it says is that the government must pay on programs that already exist and have existed for decades. None of these seem too burdensome.
If there's a problem, it could come with interest rates in the short term end of the yield curve. The long term end can be bought and sold on the market, but those won't necessarily be obligations upon the Federal government, if they've already been issued by the government. Where it will hurt is when they try to obtain new debt to replace that which expires.
Now the short end of the yield curve is what's most influenced by the Fed Funds rate. If there's a sudden uptick in inflation, the Fed will have to raise interest rates in order to tamp down inflation. This is the kind of thing that could happen in relation to an event of some kind. Such an event may not even be financial. It could be a natural event, such as a disaster. Or it could be a man-made event, such as a disastrous military debacle. Whatever the thing that could happen, it would have to cause a loss in confidence in the US's ability to pay its debt.
Such is not happening today.
But there is movement to attempt to replace the dollar as the world's reserve currency. That must not be overlooked nor understated. If it is successful, then such a loss in confidence can occur. But it may not be successful. Time will tell.
Otherwise, the debt is manageable for the moment.
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