Zero Probability of Default
Monday, November 19, 2012 at 3:00AM 
Alan Greenspan is right and wrong in what he is saying.
Yes technically the Federal Reserve could print all the money it wants and pay all spending or debt it wants to pay. By law, in a de jure way, Federal Reserve notes cannot legally be refused to pay a debt. Paying off debt in such a manner would in reality, in a de facto way, be a default.
If the US is unable to roll over its bonds, if it is unable to find buyers, then the Federal Reserve can print money. Imagine for a moment if the currency in circulation suddenly over a few years went up by 5 to 10 trillion. The effect would have to be grossly inflationary.
This is why I think that if the Treasury was unable to roll over its debt it would default. As bad as default is, hyperinflation is worse. The US has defaulted on several occasions, one as recently as the 1970’s.
The only way to know what a future president would do is to consult the crystal ball. Mine is cracked.
Yes, the US can print all the money it wants. But this should not be a point of glee, but a sensation of impending doom.
Reader Comments (2)
This is already happening, but it's not by "printing money". Check the "bid to call" ratio on treasury auctions, and you'll find, after a few convoluted hurdles, the treasury is in effect buying the treasuries no one else wants.
What the Fed appears to be doing is to sell their short term notes, and buying long term notes. With all the money awash in the system, the short term rates do not need support.