110 sats \ 2 replies \ @alonviten 29 Aug 2022 \ on: Lyn Alden AMA bitcoin
Hi Lyn - big fan, you are a beacon of hope and chivalry with your kind respectful demeanor yet unmatched logic, reason and knowledge. Thank you.
You mention that the US has no other course of action left but to essentially have a “soft” bankruptcy by inflating away its debt. Wouldn’t it take a long time for this to happen at the current rate of inflation?
How will this be possible if the fed is fighting inflation with increasing rates?
When do you foresee this bankruptcy occurring?
-Yes I think it'll take a long time. It doesn't have to take a long time (Israel's hyperinflation is an example of this), but the base case is that it does take a long time.
-The Fed can fight inflation as long as other entities buy Treasury bonds. When foreigners and domestic banks stop buying bonds, while the Treasury is trying to issue more, that's when the Fed has to step in. Otherwise, they can stand aside and watch things happen.
Over the past few years, cash and Treasuries have been devalued by inflation. I expect that to continue in the years ahead, but with volatility.
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The key difference here @alonviten is that they don't necessarily need high CPI inflation in order to sustain this.
Do they even need to "inflate it away", or is kicking the can enough?
If they continue monetary inflation (e.g QE) whose new supply goes into assets (asset price inflation), they can create a new endless stream of money toward treasuries. Obviously, if your stock portfolio went up 3x, you will diversify a bit more into treasuries (as well as pay extra taxes)
As you can see, it worked pretty fine from 2010-2020 - https://fred.stlouisfed.org/series/GFDEBTN / https://fred.stlouisfed.org/series/GFDEGDQ188S. Debt-to-GDP increased from 80% to 100%, but total debt increased from $11T to $23T! (100%)
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