Originally posted by twhitehead
I think it really depends on what the landlord (China) decides. Currently it seems to think that the best thing is to keep the US going whilst using its power over the US to get its own agenda moving.
Co-operation is usually better than everyone for himself, and although China could theoretically withdraw all its money from the US and cause enormous dama iving on borrowed money is that it is not your decision whether or not you are too big to fail.
China has a stronger interest in maintaining a strong dollar than we do.
If the dollar is devalued and we have massive inflation, as long as the stock market and wages keep pace, it's no big deal for us. It will weaken our ability to buy imported goods; but that's a good thing in many ways.
Massive inflation really hurts the big holders of the US treasury notes and government bonds; i.e., the Chinese, primarily.
Of course, if they do get burned by massive inflation, they'll probably think twice before financing our next boom ("fool me once, shame on you; fool me twice, shame on me" ); but all that will mean is that we won't be able to buy every gizmo and trinket we want every time we want it.