What incentive do any of the few actors with the ability to effect that change have to actually pull that lever? I imagine that you have spent a lot of time thinking about this, and I would like to understand your position.
That is the problem. Reigning in debasement is what needs to happen or the dollar is dead. But, reigning in debasement means spending less. Spending less means people can't be reelected for "bringing federal money home". So, there is no incentive for Congress to cut anything. But, the piece that makes me pretty sure that debasement is the goal, is that by debasing the currency it makes it possible to pay off dollar denominated debt. I can't be the only one that sees it. Nations have been divesting of US Bonds for years now.
I'll say it another way. The government can pay off its debt by making your money worthless.
I changed my investment habits as soon as I recognized it. I am already happy I did.
So, if I got it right, your argument is that the US government has issued so much debt that in order to pay for its interest in the future it will find itself forced to devalue the USD, and that will lead to the stock market to underperform.
Did I get the gist of it?
> I can't be the only one that sees it
Correct. It is a pretty common argument.
A common counterargument is that the US government has two advantages when it comes to issuing debt.
First, the USD remains the primary reserve currency around the world, and for good reasons, too. As long as global trade relies so heavily on the USD and, more generally, on exports to the US, foreign exchange rates will continue to prop up the value of the USD and USD-denominated debt.
Can this global economic system change in the future? Sure. But it has a lot of mass and momentum behind it. It can't stop overnight, any more than a tornado can.
Second is that the US government issues debt in USD and it has its own central bank, which allows them to pull levers both on the fiscal policy side and the monetary policy side. This allows them to issue pretty much as much or as little debt as they want, pay for it as much or as little as they want (let's not forget forget QE), and adjust inflation up or down with an enviable degree of freedom.
Can this destabilize? Of course, it is possible to mismanage it badly enough, in theory. But given its position as the world's reserve currency, they can get away with murder compared to other less privileged countries and currencies.
Lastly, understanding something is not enough to make money out of it. You need to have privileged knowledge that other people lack. Is that what is happening here?
Unless something changes the government will be forced to continue devaluing the USD. They have been doing it since 1913. This is late stage debasement, not the start. Unless there is a drastic change in spending or growth there is no stopping this train even for a reserve currency. Being the reserve just allows us to spread out the damage. This points back to countries selling their US debt. They see default as more likely and want to get rid of it before they get caught holding the bag. It doesn't help that we have been abusing reserve currency privilege by using USD as a weapon. Who wants to be friends when our friendship is conditional on compliance?
The stock market will continue to go up as long as inflation happens. The dollar losing value is now the dominant market force. That makes the stock market increasing dependent on cheap credit. It is too risky for me to have money in the stock market. That value can evaporate faster than I can realize it on a decision as common as a FedFunds rate increase.
The last stage of a currency collapse is the country selling assets priced in dollars to pay dollar denominated debt.
That's the core question. I would like to see the parent poster's answer as well, because I don't see it happening as long as the US can price debt in its own currency, and the only way that stops happening is after a catastrophe that isn't worth planning for because there's no way to survive financially.
