Alex Merced Liberty Blog

Hypotheticals can be a lot of fun, and after being made aware that Moodys might downgrade the US credit rating while I was spending time in the LibertyForest chatroom. In this video I discuss the effects of downgrading the US credit rating can potentially have since the ability for much of the money in Pension funds and Mutual funds are restricted as to the credit quality of the securities it buys this could force a lot of capital to leave treasuries and move to other parts of our or other economies. While It's likely the US would pass promptly a resolution giving these funds the ability to continue investing in treasuries there would still be a global sell off of treasuries.

Would this mean the end of the dollar? Not quite yet, because many countries who have set relationships with the dollar will purchase other US assets such as corporate bonds or real estate leading to move private sector investment, although this will continue to cause inflation in these countries such as china. Essentially these countries are experiencing the inflation we should be experiencing, and when they get tired of taking the bullet and stop purchasing US assets the hyper inflation scenario then kicks in while these countries allow their currencies to appreciate destroying purchasing power of the dollar to buy foreign goods.

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