Coins could replace Dollar Bills.

[evensgrey]

I remember my doctor giving me one of those when I had my tonsils taken out. I still have it in the dropleaf desk back at home. Those things seem to be pretty dang rare.

I've actually heard some argue that government debt denominated in domestic currency was preferable to foreign debt as the government, being the arbiter of that currency, would be able to print any extra money necessary to pay off the debt. Then again, I've recently read the book "This Time Is Different" which showed that domestic debt make much of a difference when it came to the risk of default or financial crisis.

Well, you see, even if the US Treasury tried to pay off the debt with newly printed money, it wouldn't work.  The way that new money is put into circulation is by creating new government debt, which in turn is used to 'back' the issue of new (electronic, but it makes no practical difference) currency by the Fed.  All that could be done would be switching one set of government bonds for another (and adding the cost of doing the processing to the total).

One of the more disturbing things about this scheme is that the finite rate at which government debt is created is one of the few limitations to the inflation of the US dollar at this time.

Another is that if the government was to start running surpluses (real ones, not like the phony ones Clinton created by selling bonds to the Social Security fund) it would (or at least SHOULD) pull currency out of circulation, creating DEFLATION.  Deflation doesn't sound bad, until you consider that some things (like housing costs) are VERY sticky, usually much stickier than wages, and existing debts are usually completely unmovable.  If you borrow and then there's deflation, the dollars you borrowed are rather smaller than the ones you have to pay back.  (If you have a mortgage, deflation is likely to put it under water, or upside-down as it's usually put in Canada.)

[MrBogosity]

This might be a good time to remind everyone what inflation and deflation actually are:

[yt]eN7lEMXZRMM[/yt]

[evensgrey]

I'm fairly sure I was using the terms correctly in my previous post.

[MrBogosity]

I'm fairly sure I was using the terms correctly in my previous post.

You were, I just wanted to make sure everyone understood it.