2008-11-13itulip.com

Ka-Poom Theory since 1999 occupies a position outside [the usual inflation vs. deflation] framework. It asserts that all of the money that the US needs to create monetary inflation that deflates both its external debts and domestic private debts already resides outside the US in the form of more than $13 trillion in gross external debt to the tune of 95% of GDP. Most of that debt is in the form of US treasury bonds. All the US has to do to devalue the dollar is induce its trade partners to sell, perhaps by indicating an intention to monetize debt wothout actually doing so, causing US creditors to sell some dollar denominated securities for assets not priced in dollars, resulting in an increase in the global supply of dollars. The effect is the same as the US printing money but without a corresponding issuance of new debt and the attendant risk of hyperinflation that Roubini refers to.


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