US credit risk is now greater than Indonesia. James Mackintosh at the Financial Times writes, (bold highlights mine)
It sounds dotty to suggest the US is at imminent risk of default. A country that has rarely been able to borrow so cheaply, that issues debt in its own currency and has just demonstrated that it can print as much money as it likes need never miss a coupon payment.
Yet in the past fortnight traders have come to the conclusion that America might breach its own constitutional clause that its debt “shall not be questioned”. According to Markit, the cost of one-year US credit default swaps, which insure against default, almost tripled in six trading days.
According to this – far from perfect – measure, the US is now more likely to default than Indonesia or Slovenia in the next 12 months.
Well the US has already been engaged in a policy to default on her liabilities indirectly.
Paying creditors with currency that has lesser purchasing power than when the debt had been contracted represents as (hidden) default. The nominal amount of the contract remains the same, but the currency's buying power has substantially been reduced.
And such policy has been channeled through what is known as Quantitative Easing or money printing (inflationism).
As Murray Rothbard wrote,
Inflation, then, is an underhanded and terribly destructive way of indirectly repudiating the "public debt"; destructive because it ruins the currency unit, which individuals and businesses depend upon for calculating all their economic decisions.
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