Will the US Devalue the Dollar?

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321GOLD – March 3, 2010 -- “…The amount of outstanding US debt has now reached levels that can never be paid off:

... the United States government and its agencies have, by far, the largest pile-up of interest-bearing debts ($15.6 trillion), the largest accumulation of unsecured obligations (over $60 trillion), the largest yearly deficit ($1.6 trillion), and the greatest indebtedness to the rest of the world ($4.8 trillion)….

DEVALUING THE US DOLLAR
Devaluation is the US' only remaining option. But, on February 25th, Comstock Partners' special report, The Cycle of Deflation, Impediments to Debt Relief, pointed out the major impediment to a US devaluation to reduce debt - China.

...there is a stumbling block to the normal competitive devaluations that typically take place. In the past, a country that incurred too much debt just did what they could to devalue their currency in order to export their way out of the dilemma by exporting their goods and services to their trading partners. ..[But]The Chinese have linked their currency to ours, so as we debase our currency, one of our major trading partner's currency is also declining and China becomes the major beneficiary of the debasement of our dollar.http://www.comstockfunds.com

The China peg to the US dollar thus prevents the US from altering its trade deficit by currency devaluation, but it does not prevent the US from devaluing the dollar for other reasons. If the US does devalue the dollar, it will not be to reduce debt - it will be to maintain its advantage over the world in general and China in particular….

THE END GAME AND SOVEREIGN DEFAULT
The US is trapped. Caught between rising expenditures and the need to borrow more, outstanding US debt is incapable of ever being repaid and should the credit rating of the US ever reflect its actual state, sovereign default, not devaluation would be the result…..

For the complete article see:
http://www.321gold.com/editorials/schoon/schoon030310.html