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Discussion Starter · #41 ·
Secondly, if you owe me a dollar and it's value depletes based on inflation rate, then you still owe me the equivalent of that dollar, even if it's$1,000 now and so many countries owe the US.
That's an incorrect assessment, actually.
As our dollar devalues, we still only owe the same number of dollars, not the same value that those dollars used to represent.
A country experiencing inflation and a devaluation of their own dollar actually benefits, in a sense, where their debt is concerned.
Inflation is a tool used by governments to decrease their debt burden. It's more palatable to citizens and politicians than the alternative methods, even if it's a net loss for the country.
Here's an example I pulled from an article on the topic:
How Does Inflation Reduce Debt?
With inflation, the losers are the people and institutions that own the debt, because the currency shrinks in value. For example, say you loan the government money by buying a $1000 U.S. government bond that matures in ten years. At the time you buy it, you could buy a fully loaded laptop or a round trip ticket to London for $1000.

Now, let’s say the U.S. inflates its currency at a 7% rate for the next ten years, which would be about twice the “normal” inflation rate of 3.3% for the past 80 years. At the end of that time the bond matures and you get your $1000 back. You go to buy a laptop; they now sell for $2000. That trip to London costs $2000, too. Many people in this situation will think that the prices of laptops and airline tickets have gone up.

Actually, in real dollars (which are dollars adjusted for inflation), the cost of these items hasn’t gone up a dime. It’s the value of the dollar that’s gone down, in this case, by 50% over ten years. The big winner here is the U.S. government, because its multi trillion-dollar debt has been chopped in half (again in real dollar terms) in ten short years. They accomplished this without raising taxes or cutting spending, which is intoxicatingly appealing to politicians.
(source: Rick Kahler: Inflation a Tool to Reduce National Debt | Kahler Financial)
If a country continues into an inflationary spiral, other countries are less inclined to purchase that country's debt, knowing the dollars they get back at the end of the bond period won't be as valuable as they were when the debt was first purchased.
This can cause a lowering of USD as a reserve currency, and it can incentivize other countries to look for alternative means to purchase oil without needing to convert or keep USD.
Currency is literally a supply/demand issue. The less demand there is for your currency, while maintaining or increasing the supply, the lower the value drops.
Whether it's fiat or not, this rule remains the same. You don't invest in junk for the sake of holding the junk. You invest in the things you think will increase in value, which requires an increase in demand or a drop in supply.
The USD has been falling out of demand for a while, and we don't know how much farther it can fall before it's no longer preferred.
I'm not trying to claim it's "likely". But we need to be aware that it's entirely plausible, and be ready for that eventuality.
 

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Depends on if our loan clause has an agreement to adjust for Inflation/Devaluation... I believe loans between nations might account for such, for us an individuals I think not.
 

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Discussion Starter · #43 ·
Depends on if our loan clause has an agreement to adjust for Inflation/Devaluation... I believe loans between nations might account for such, for us an individuals I think not.
Publicly held debt does not have any such agreement, as it is simply sold as bonds which people and other nations can purchase.
The value of the bond is fixed at maturation and is not adjusted for inflation. That's why inflation is essentially a reduction of publicly held debt. At maturation, the real value of the bond is lower than it would have otherwise been without inflation occurring.
 
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Are all such agreements between nations as such...?

Let me explain, between you and government you buy bonds and get money back after a time.
Between Country A and Country B, what kind of agreements does the State Department use?

This is what I mean by agreements between nations. By the time you buy a $25 Bond for $15 and, government pays you $25 for cashing in your bond 10 years later your $25 dollars is worth the $15 you paid for it, at this rate of inflation you'll lose money... lol
 

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Discussion Starter · #45 ·
Between Country A and Country B, what kind of agreements does the State Department use?
They use the same "agreement" as you would make buying debt yourself from the government. That being, the purchase of a U.S. Treasury Security.
There is no special "government to government" means of buying debt.
There are two types of public debt options available for purchase at auction.
1. Treasury Securities
2. Treasury Inflation-Protected Securities

The first is the what is held by the vast majority of all holders of US debt, individuals, banks, investment firms, and foreign governments. They are relatively stable, offer a wide variety of maturity ranges, are easy to purchase, and can be cheaper to buy in the long run.
The second is the type you are thinking of, and they are much more rare. The reason being, their rates can go negative or stagnate, depending on the rate of inflation/deflation. Since they are sold in 5, 10, and 30 year maturity ranges, it's a risk to assume inflation will result in a net gain over normal securities. If you could forecast an inflation period, and know it would beat a normal rate offered by the standard securities, you may take the risk. Most don't.
Nearly all public debt is held as Treasury Securities, in the form of T-bills, T-notes, and T- bonds.

So the game becomes, how far could the inflationary spiral go, and for how long?
Would it be wise to say it would go 5 years? (the minimum maturity range available) Maybe. That's the risk.
But if we see inflation for 2-3 years, and then recover into a period of deflation, then it would have been more wise to buy normal securities than to buy inflation-protected ones.
Investors must also contend with the risk that an inflationary spiral could become so bad that the government defaults on its securities payments because it doesn't have the money to meet them.
This would require a drastic downturn, and is unlikely, but it looms as a possibility.
 
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Discussion Starter · #46 ·
It looks like Russia is setting itself up to use a new gold standard to back its money.

If they are no longer a fiat currency, this could have big implications in the future.
 

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Discussion Starter · #48 ·
Europe is showing its belly:
Now the head of the European Central Bank, Mario Draghi, is confirming that European gas buyers are paying for energy in Russian rubles. Draghi now says that “most gas importers” have opened up Ruble accounts with Gazprom and have acquiesced to Russian demands. One after the other, European gas buyers are violating the EU’s sanctions against Russia, as Western tough talk becomes nothing but a mere echo of weakness. The world’s reserve currency – the U.S. dollar – is taking a historic blow in the process, as Russia circumvents the petrodollar.
 

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Discussion Starter · #50 ·
Not all the pressure in the West is coming from Russia... The US could easily export gas to Europe but, well... Biden.
"But Biden" seems to come up in a lot of my conversations lately.
 

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The US got away with massive dollar creation, and I believe they will get away with it. The thing about the dollar is no alternative. If a Russia, China, and India collectively agreed to a UN “greenback” and even offered to include the dollar in a basket of currencies maybe. That doesn’t seem to be working and much of the remaining free world would no longer include Russia. Despite rabid over printing (creating money) I believe they will get away with it. I didn’t think that a year ago, but I do now.
 

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Discussion Starter · #52 ·
The US got away with massive dollar creation, and I believe they will get away with it. The thing about the dollar is no alternative. If a Russia, China, and India collectively agreed to a UN “greenback” and even offered to include the dollar in a basket of currencies maybe. That doesn’t seem to be working and much of the remaining free world would no longer include Russia. Despite rabid over printing (creating money) I believe they will get away with it. I didn’t think that a year ago, but I do now.
Your prediction appears to be playing out.
The "BRICS" countries of Brazil, Russia, India, China, and South Africa are officially creating a new "basket of currencies" which will be used as their new global reserve currency, with their stated goal being to “cut reliance on the Western financial system.”

The US dollar's popularity is declining as its value does the same.
I wonder how long it can last...
 
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Discussion Starter · #54 ·

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The mental impact on the loss of world reserve currency status would be worse then the real impact. Study the Pound and what happened to England after it was removed in the 70’s.
 
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