US becoming Banana Republic?
Warren Buffett, when asked whether credit downgrade of US Treasuries is significant, said no, and explained that US borrows money in its own currency, thus it can print more money to pay debts, eliminating the possibility of a default. But, he cautioned, that means inflation is going to go up.
Bill Gross, in his latest commentary, elaborated on that and explained how US could pay its debts through 4 means, namely budget balance, unexpected inflation, currency depreciation and financial repression via low/negative real interest rates (ie. robbing saver to pay debts for the borrower)
Here’s the well-written article and its pun on US
Like many a Banana Republic, we may one day be invoking the Lord’s Prayer, pleading – “Forgive us our debts, as we forgive our debtors,” yet at the same time looking towards the heavens á la Saint Augustine with a fervent “let me be chaste, but let it be tomorrow.”
Entry filed under: Watch your step.