Probability of U.S. Default

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default" said Greenspan on NBC's Meet the Press.
 The first sentence is true. The second is not.
Suppose that avoiding default requires money creation on a scale that would set off an inflation rate of fifty or a hundred percent a year. The U.S. could--but would it? That would be a de facto default although not a de jure one, since creditors would be being paid back in inflated dollars. And it would have all the added costs of inflation.
Would Greenspan advise doing it? Unlikely.
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Published on August 07, 2011 13:22
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