Re: Michael Hudson: How the Chicago Boys Wrecked the Economy
No razzing, as this is a big question, and the tentative scenario presented below is off the top of my head!
I think there will be default through a mixture of inflation, bankruptcy, and populist legislation. The external debts of the United States government, denominated in dollars, will most likely be discharged by creating more dollars. Some portion of the internal debts of the United States government "to itself" (i.e. mandatory entitlement spending) will be abrogated by legislation, and the rest discharged by creating more dollars. Some portion of individual consumer debt will be transfered to the government and discharged as above through a series of bail-outs; the remainder will be defaulted upon through the mechanism of bankruptcy (with populist legislation reversing the recent changes to bankruptcy law and making bankruptcy easier).
Wholesale default will render the dollar next to worthless, leading to social unrest, and justifying "emergency" economic measures. During the period of emergency and a non-functional national currency, we will see rationing, price controls a la WWII, and state control of most "vital" productive industries. Foreign trade will be based on a different reserve currency (which we must buy with exports and sell for imports). Gradually, the government will introduce a new medium of exchange that is probably linked in some way to the system of rationing -- and by extension -- to shares of the economy's productivity. After some degree of social stability is achieved, state control of the economy will recede to be replaced by a market economy based upon the "new dollar". In the process of dismantling the system of rationing and state control of industry, the "new dollar" will probably turn back into a fiat currency, and the merry cycle can begin anew.
Is this crazy?
Originally posted by Jim Nickerson
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I think there will be default through a mixture of inflation, bankruptcy, and populist legislation. The external debts of the United States government, denominated in dollars, will most likely be discharged by creating more dollars. Some portion of the internal debts of the United States government "to itself" (i.e. mandatory entitlement spending) will be abrogated by legislation, and the rest discharged by creating more dollars. Some portion of individual consumer debt will be transfered to the government and discharged as above through a series of bail-outs; the remainder will be defaulted upon through the mechanism of bankruptcy (with populist legislation reversing the recent changes to bankruptcy law and making bankruptcy easier).
Wholesale default will render the dollar next to worthless, leading to social unrest, and justifying "emergency" economic measures. During the period of emergency and a non-functional national currency, we will see rationing, price controls a la WWII, and state control of most "vital" productive industries. Foreign trade will be based on a different reserve currency (which we must buy with exports and sell for imports). Gradually, the government will introduce a new medium of exchange that is probably linked in some way to the system of rationing -- and by extension -- to shares of the economy's productivity. After some degree of social stability is achieved, state control of the economy will recede to be replaced by a market economy based upon the "new dollar". In the process of dismantling the system of rationing and state control of industry, the "new dollar" will probably turn back into a fiat currency, and the merry cycle can begin anew.
Is this crazy?
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