I think US would rather devalue the dollar by 30% in a very short amount of time than get in trouble over its debt. That would still be a catastrophic outcome, but I'm just saying that's most likely the option they will take.
I agree. I think the reserve-currency status of the US places it in a position where inflating out of debt will be less devastating than in other parts of the world.
You're probably right. But what happens after that?
On one side of the coin, people see that investment in US debt isn't so safe as they thought. Thus, borrowing becomes more expensive for the USA.
On the other side of that coin, America will have mostly escaped the really bad consequences of its behavior. I submit that we will not learn our lesson from it, and won't alter our behavior in any meaningful way.
I see those two things combining in a really vicious cycle.
Printing money to repay the debt will tend to both devalue the debt through inflation and repay it directly, so to reduce the debt by 30% we would need way less than 30% inflation. And looser monetary policy would tend to reduce unemployment and raise tax revenues anyways. Thanks to having our own currency which our debt is denominated in, the US has far, far better options than Spain does.
