The US debt problem is beyond repair unless one of the following happens:
- The US repays 100% of its debt (almost impossible due to the sheer size and social consequences)
- The US defaults on its debt obligations (more like than #1, but highly unlikely since its contrary to the mandate of the government to pay its stakeholders -)
- So, what I believe the US government is actually doing is the following:
a) STEP ONE: rapidly increase money supply (ie. termed “quantitative easing,” which I speculate is a euphemism designed to confuse the public) to pay for its debt obligations. The US does this by selling a great deal of cheap bonds at record low interests or having the federal reserve print money.
b) STEP TWO: This increase in money supply with devalue the dollar, which will lead to rapid inflation and
c) STEP THREE: Raise interest rates, which will have multiple positive affects including the following:
i) It will reduce the level of borrowing by consumers so it will reduce inflation by turning more people into savers
ii) The US government can now use all the money it issued at low interest rates to make money in the higher interest rate environment
