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Originally Posted by hip hop bunny hop
Who ever says the USA is bankrupt is an idiot and should be ignored. Let's get this straight - the USA is not bankrupt. Some are questioning whether we will go into bankruptcy once Boomers retire en masse due to questions regarding the long-term solvency of certain entitlement programs aimed at the middle class (Medicare & Social Security, basically)....
The real question that everyone has is not whether or not the USA will pay back its loans; but, rather, how inflation will effect the value of bonds.
Example: Say, one year ago, Swiss citizen #2 turns 100,000 Swiss Francs into USD, and then uses this money to buy American T-Bonds. One year later, he sells his bonds. Now, he'd have a bit more than 100,000 - but, because the dollar lost 30% of it's value against the Swiss Franc, if he converted the dollars back into Francs he'd only have 70,000 Francs.
However, as I stated earlier, this inflation isn't all that bad for the USA. It makes our debt cheaper. It makes items from America cheaper - not just products, but our services, natural resources, etc. This has a positive effect on our trade deficit.
Understand?
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If the loan is in euros for example, then inflation is horrible. As long as a loan is in US dollars, then inflation
may decrease the loan. But, it depends on the terms of the loan. It may well be that the interest of the loan changes with inflation and then it might not be as clear cut as you imagine it to be.
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Originally Posted by Wikipedia
Charge X% interest 'plus inflation'. Many governments issue 'real-return' or 'inflation indexed' bonds. The principal amount or the interest payments are continually increased by the rate of inflation.
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So, depending on the loan, an increase in inflation may cause an increase in interest payments so it's not always as clear cut as saying inflation = less debt, even if that may be the overall trend.
As for the market and inflation, it's not really a very good thing. Imagine that American A imports soap bars from china and sells them again in America. The importer pays the chinese 1 dollar per bar, but then there's inflation so that each soap bar suddenly costs 2 dollars. In order to make a profit, the importer has to up the price he himself takes from soap bars when selling them in America so prices on soap likely double. American B who had saved up 100 000 dollars in the bank is now much poorer and can afford less soap bars for his savings.