Comment: In a narrow, technical sense

(See in situ)

In a narrow, technical sense

In a narrow, technical sense that is right. But step back and look at what kind of motivation America has for paying back "any debt it has", and you will find that it is in order to keep investors confident enough to let it incur new debt in the future, should it need/want to. Does Greenspan really think that still holds true if all previous creditors were only paid back in newly printed money?

A default by debasement is just as detrimental to investor confidence as an explicit default. Making it in no way preferable. But in addition, the debasement solution does enormous damage to every institution in the dollar sphere, something an explicit default does not do.

I keep hearing Greenspan's quip from all kinds of people, because that is how their models are built: US sovereign debt is safer than any private dollar debt, because it has no default risk, only inflation risk, while other dollar debt has at least some default risk, on top of the same inflation risk as sovereign debt. It's basically an unquestioned assumption underlying all that these guys have been doing their whole careers.

Now, if they only bothered looking a bit deeper, they would find that that assumption is in no way an immutable law of economics, but rather an arrangement that can be revoked by Congress any time it should feel like it, which it will as soon as enough members recognize it is no longer an arrangement that serves their electorates (or, more likely themselves) any longer.