The big print: 18 trillion reasons to fire up the presses

POSTED ON November 02, 2015 BY Benjamin Cox
CATEGORY Gold, US Dollar, USA,

What happens if the United States prints 18 trillion new dollars and pays off its debt overnight?

My belief, which I think is widely shared, is that no one expects the U.S. to pay back its debts - so in reality we have already defaulted. Why not just go one step further and issue the currency, pay back the debt, and remove the default risk?

Initially the world would be in terrible shock, but that would last for less than two weeks. There would be wild short-term changes in the price of commodities and everyone would threaten to decamp to another world currency, but that would not last long, as I think the positives far outweigh the problems.

Long-term:

The U.S. would face a serious one-year bump in inflation.
U.S. debt service costs would be wiped out for a long time, freeing up money for other important things like social services and funding another unwinnable war.
The U.S. government debt position would be the strongest in the world.
The dollar would get stronger instead of weaker, as the overhang would be gone and the assumed default is already priced in.
The government could afford to raise rates, and capital would flow into the U.S.
I think the USD would stay the reserve currency, because the US would not have a default risk for another 20+ years.

The average U.S. household has a fixed-rate mortgage and the value of that debt would drop, leading to a direct stimulus to every household. The value of the bonds underlying the mortgage and other markets would go up, as money would be chasing non-governmental debt.

Pension funds, retirement funds, insurance companies, China (cry me a few tears), and wealthy individuals who are so rich they are buying government debt would get hurt, and a few leveraged hedge funds would implode. The fact is however, that right now we are stealing from our retired population by paying nothing for our money, and we are already defaulting on pension funds and insurance companies. We are just doing it slowly, and somehow that is politically acceptable.

Currently, I don’t believe that anyone in Washington has the guts to do something like this. Imagine Obama’s legacy if his last act was to wipe out the debt? He does not need to get re-elected, and he does not love the Clintons. Heck, he can take it one step further and print 20 trillion new dollars, and pay off all student loans as well.

What do you think? Weigh in at CEO Chat, the investment conference in your pocket.

Benjamin Cox

Prior to founding Oreninc, Mr. Cox served as a senior analyst at the D.E. Shaw Group and as a consultant with the GLG Group, where he worked directly with 15 Wall Street teams in the mining deal space. Mr. Cox is the Chief Executive Officer and a Director of Aston Bay Holdings Ltd. (TSX-V:BAY), a copper and zinc company with properties in Nunavut, Canada. Mr. Cox has researched and developed business, financial, and shipping models for every major global iron ore project. He is also an expert on mining industry market dynamics and metals, with a focus on raw materials including base metals, iron ore, platinum group metals, and industrial materials such as potash and lithium. Mr. Cox holds a B.S. from Brandeis University and an M.B.A. in Finance from Portland State University. More →

bjc@oreninc.com

Benjamin Cox

bjc@oreninc.com

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