Alan Greenspan said this on Meet the Press:
The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.
Statements like this are why many fear we are headed toward hyperinflation. But how can one predict with certainty what someone will do in a crisis. I think that debt repudiation is far more likely than hyperinflation. Greenspan is no longer Federal reserve Chairman. What does our current Federal reserve chairman think?
People know that inflation erodes the real value of the government's debt and, therefore, that it is in the interest of the government to create some inflation.
Ben Bernanke also proposed that if all else fails the Federal Reserve could drop money from helicopters. To be fair to Bernanke he was quoting Milton Friedman. However the inflation argument does seem rather strong. Why then do I think it will not happen?
I Am Praying TooI may be an optimist, but hyperinflation would destroy the investments of much of the elite that run our country. Their own self-interest should keep it from happening. The bond market is signaling a continuation of the recession by the lowering of interest rates, even on the recently downgraded treasury bonds. The current stock market prices are signaling a continuation of economic growth by its price to earnings multiple. While it is possible that both are right—that we are headed toward economic collapse with higher corporate profits, this seems unlikely. I smell the plunge protection team.
Church of the Annuciation, Murom, RussiaThe only good news is the drop in oil prices, which of course is bad news for Russia where I am headed next week. I will probably look for apartments while I am there, you never know. The ruble hit new lows today, almost as low as it was in 2002 when I first went to Russia. We will visit the oldest wooden church in the world. I will study Russian. We will drink vodka. I enjoy visiting my mother-in-law. She is the perfect mother-in-law. She does not speak English.