John wrote:Dear Vince,
vincecate wrote:
> I asked you first. Do you know of a single time where a country
> with debts in their own paper currency, which they could print,
> defaulted on those debts?
Here's a list
of major post-war sovereign defaults:
1981 * Pakistan Poland Rumania
1982 * Argentina Cuba Dominican Republic Ecuador
1983 * Brazil Chile Costa Rica Philipines Yugoslavia
1985 * Vietnam
1998 * Pakistan Russia Ukraine.
1999 * Ecuador. Indonesia. Pakistan.
2000 * Ivory Coast.
2001 * Argentina.
2003 * Paraguay Uruguay
2010 * Dubai
The Dubai example is very recent.
I believe that in almost all cases, the country had its own paper
currency, with default but no significant inflation.
I don't think that in a single one
of those cases was the debt that was defaulted on in the local currency. These are not like the US case. I fully agree that a country that owes money to foreigners in a foreign currency has a high probability
of default. Argentina defaulted on foreign debts in US dollars and still got hyperinflation in their local currency. Dubai also owed money in British pounds, US dollars, and German Deutchmarks.
I have checked into several
of those and do not believe any
of your examples are examples
of what I am asking for. Can you show one
of them where you are sure the debt that was defaulted on was in the local currency, which the country could print?
John wrote:
Your whole theory is based on the assumption that a country will do
anything to avoid default. In fact, many countries will do anything,
including default, to avoid hyperinflation. Many countries will see
default as a "painless" way to get out of debt, but hyperinflation as
very painful, so they'll prefer to default. In my view, this is the
direction that U.S. policy is going. In my view, the US government
will increasingly find default acceptable, but will never find
hyperinflation acceptable.
OK, your turn. Give me a debtor country in the 1930s Great Depression
that successfully hyperinflated its currency to avoid default.
No, no, no. My belief is that the generation in power in Japan, Europe, USA does not really understand hyperinflation. So they are working into it without ever realizing that is what they are doing. Congress does not get that having a deficit
of 40%
of spending is heading toward hyperinflation. The Fed does not get that printing a trillion dollars a year is headed toward hyperinflation. Holding interest rates so low that people stop buying bonds means more printing money, but they don't get that. Bernanke may really think that since he is doing it on a computer it will not cause hyperinflation (as you seem to). When it hits 99.9%
of the people will think it just came out
of nowhere. I think nobody chooses hyperinflation on purpose.
I gave you a book full
of examples were high debt and deficit results in hyperinflation. My examples are all real. There was lots
of hyperinflation after WW1 so the generation in power in the 30s understood hyperinflation much better than the generation in power today. Why do you request an example from the 1930s and not recognize the 30+ examples in the book?
In moving off the gold standard most countries really defaulted and got inflation in the 30s. Their notes said they owed gold, and they defaulted on that obligation. This is really like defaulting on a currency that you can not print. So it is not like the current situation. Getting both default and inflation is a possibility. But not my prediction for the US now.
Again, 99.9%
of the people won't see hyperinflation coming. After it hits, defaulting would not help much. Defaulting would mean absolutely no more bond sales, except to the Fed. They still have to print for the 40%
of the budget that is deficit and when things get bad people will be rushing to buy real things. The velocity
of money will shoot up and you will get hyperinflation. When prices start going up the deficit that is now 40%
of spending becomes much higher, as all the government union members get COLAS (cost
of living increases). So the deficit/printing will shoot up, velocity
of money will shoot up, the economy will fall apart (you can almost count on the government to put in price controls which will shut down all kinds
of business). The only possibility to stop hyperinflation is to cut government spending in half, and that is no real possibility.