Neither a borrower nor a lender be

SW writes: Bill Buckler, from his newsletter the Privateer… says that the Asians have to make a choice about whether to buy the continuing avalanches of US debt that will be issued from the US Treasury. If they buy the debt, they have to expand their own money supplies. If they don’t, then the dollar will fall. “They know that they can either crash their own economies, or crash the US Treasury.” Why will the dollar fall if the Asians don’t?

If the Asians don’t continue to buy US Treasuries, which are loans taken out from the Federal Reserve by the US government, then the government has two options: raise taxes dramatically or print more money. (Actually, there is a third option of providing worthwhile services for which people are willing to pay, but don’t hold your breath waiting for that to happen.) Since increasing the tax burden would drive the greedy, overburdened American consumer into default, the only serious option is inflation.

We have been seeing plenty of signs of this over the last few years, as asset prices have increased, now accompanied by rising producer prices and, despite the best efforts of the statisticians to hide it, consumer prices. Now, the USA is in serious trouble if the Japanese and Chinese stop printing yen and renminbi in order to buy dollars since the Asians account for about two-thirds of our debt purchasing. Inflation would have to increase dramatically for government to keep spending at its current rate, much less increase its rate of spending as is currently planned.

More dollars equals lower value. So, the dollar falls.