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Dollar Caught in Catch-22: Default or Debase?


And both lead to more inflation for biggest debtor on Earth.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.

While the bond market may have bounced over the last couple days (which I suspect is mostly because the bond market knows the Fed will soon be getting more aggressive with its monetization programs), that bounce has only occurred in terms of dollars.

Because of the dollar's steep decline, the US bond market continues to crash as far as foreigners are concerned - and these foreigners obviously own a lot of US Treasury debt.

Click to enlarge

I'd also note that gold, on the other hand, continues to rally in all the major fiat currencies (see the chart below).

Click to enlarge

What's the message there? I'll leave that for readers to decide for themselves, but I'd submit that the market may be catching on to the predicament that the Fed and Treasury are in. There are only 2 options that lie ahead for the biggest debtor on the planet (i.e. the US government), and those options are 1) default or 2) debase - and they both lead to more inflation.
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