Gordo wrote:Quite the contrary! BECAUSE the dollar is considered the "go to" currency in times of instability or panic, it makes it even EASIER for us to print money without immediate repercussions. This is exactly what we've been doing! This is how we can have $3 trillion in bailouts, deficits, and stimulus, all borrowed at extremely low rates and accompanied by a strong dollar. A plunging dollar (and rapidly rising treasury rates) would be necessary to END the massive printing of money.
As far as the last sentence, all that is necessary to end the stimulus effect is for the long end of the treasury curve (30 year bond for example) to rise as default risk increases due to increased borrowing. It is a time dependent phenomenon that will show up on the long end first and choke off the recovery. That's why we never get out of the slump with increased borrowing unless...productivity, appropriate cost reductions, jobs, earnings and all those other things I was talking about. The long end of the yield curve acts like a boa constrictor and will exert its discipline. It constricts the private sector and results in job losses, slower real estate markets, things like that.
Another piece of the asset side of the government "balance sheet" are all of those social security numbers that send federal tax revenues to the government. Job cuts, reductions in hours, and reductions in pay equate to loss of revenue. Japan didn't have that problem.
For the first 2 months of this fiscal year (October and November 2008), federal interest expenses on the debt are down 22% over last year.
Bottom line, no free lunch. No free energy either. Unless you like delta G, the Gibbs free energy.