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Since most of the national debt is held in short term notes...
The average maturity of public debt securities is between 5½ and 6 years. The interest rates on most of that are fixed. They do not change as the result of market activity.
Since most of the national debt is held in short term notes, interest on the debt would quickly consume the whole federal budget. The monetary system would collapse and the dollar would turn into toilet paper. The nation could handle 10% T-bills 35 years ago, it could not do it today.
It's not as dire as it might seem at first glance. Yes, consumables like gasoline, clothing, consumer electronics and imported vegetables would become unaffordable if they were available at all. Pensions and social security would become worthless. However, the value of real assets would not change, though the value could no longer be measured in dollars. A home would still be a place to live and keep your stuff.
We have seen asset hyperinflation for several years now. Farm ground in some areas is selling for $10,000/acre, bid up by speculators looking for a real place to park excess dollars. The only way that investment makes sense is if they are betting on the dollar to collapse; the productivity of the land does not justify it. We haven't seen consumer inflation because consumers don't have any money. Wages have been stagnant or declining for decades, so demand has remained flat while automation and offshoring have cut production costs.
There are other sectors that have seen very high inflation, if not hyperinflation. Health care and education have mushroomed in cost. Housing in desirable areas has inflated rapidly, though several states remain undesirable, mostly because of climate, and still offer inexpensive housing.
The only way we will see consumer inflation is if the value of the dollar declines on the world market, pushing up the price of imports. If the dollar starts to weaken rapidly, interest rates will have to rise rapidly to avoid a run on the dollar. With the current debt structure, that will just delay a currency collapse, not avoid one. At that point, the Great Depression will look like a Sunday picnic. If you have dollar assets, moving a percentage to a basket of other currencies is a good idea.
There are already multiple reserve currencies. The gullible and otherwise confused seem to believe that a panel of beauty contest judges somewhere can simply oust the dollar and appoint some other currency to serve out the rest of its term.
Economic activity will increase. Or it might decrease. Employment will either go down or up. Poverty could get worse, but it could also get better.
Under some conditions, one would expect each of those to stay about the same. This would be the third of the only three things that such variables can do
There are already multiple reserve currencies. The gullible and otherwise confused seem to believe that a panel of beauty contest judges somewhere can simply oust the dollar and appoint some other currency to serve out the rest of its term.
'The powers that be' is very broad. There are pols and political leaders with their nation's economic milieu and monetary policies. And there is big money and influence on the private side, with big business, industry, finance and banking.
Right now on balance the private side prefers the USD over any other currency. The demand is highest, and the supply is being met. The EU and Yen might be in a notably inferior second place.
Under some conditions, one would expect each of those to stay about the same. This would be the third of the only three things that such variables can do
'The powers that be' is very broad. There are pols and political leaders with their nation's economic milieu and monetary policies. And there is big money and influence on the private side, with big business, industry, finance and banking. Right now on balance the private side prefers the USD over any other currency. The demand is highest, and the supply is being met. The EU and Yen might be in a notably inferior second place.
Actually, the USD is the world's #1 currency because the US is the world's #1 economy. We produce about 22% of everything produced anywhere in the world and we have have long been deep participants in international trade. The existence and momentum of dollar-supremacy have nothing to do with anything else. It is the accretion of hundreds of thousands of individual decisions made daily over many years and all over the world.
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