default, debasement, or inflation?

Higher inflation, debt default or currency debasement look to be the only viable options going forward for major economies, starting with greece. This coming recently from Rothschilf Private Banking Trust, Head of Investments.

This is something the world has been slowly coming to grips with over the past few months, but it's set to become issue number one over the next few weeks as the perfect storm coonverges on the global debt markets. The technicals and fundamentals are now aligned for historic moves in global markets, but the outcome is anything but certain.

Personally, I see massive debt deflation affecting paper assets whose valuations are based on interest and future cash flows. Meanwhile the RESPONSE to this debt deleveraging will be government prompted money-printing producing a highly/hyper inflationary reaction in real assets.

I am comfortable with that outlook, but I am still very unclear on the outcome of higher inflation vs. government debt default and the subsequent effect on the global markets. Based on history, we've seen "middle of the road" examples in Russia and Iceland, etc. We've seen extreme examples in Zimbabwe, Argentina, weimar, etc... But I find it difficult to compare the old scenarios with the current framework in order to assess the probability of government decision-making between outright default, stealth inflation, and outright and blatant currency debasement.

 

They all have their advantages/disadvantages relative to current conditions, but which way will they lean?

I think we are headed for a greek default, i.e nonpayment, and eventual expulsion of fiscally weaker countries from the European Monetary Union.This will lead to global panic and total disruption of long-term socio-politcal goals (i.e united europe) which will create a counter-reaction that results in no more defaults but currency debasement on a global basis leading to runaway inflation and eventually hyperinflation as the currencies collapse under the weight of the debt these currency economies are carrying.

I'd love to hear some solid austrian views on the default vs inflation/debasement question GOING FORWARD from this point, based on what we've seen so far during this crisis.

What would be the effects of higher inflation versus currency debasement and/or default?  Would love to hear others views.

There is another way out. I believe that it is possible to pay off all sovereign debt using a method disclosed in the last chapter of Jesus Huerta DeSoto's book, Money Bank Credit and Economic Cycles. That is; to outlaw fractional reserve banking while the government in question deposits its own new treasury currency in the banks to fill in for the central bank notes and demand deposits created from nothing. The ownership of the deposits would then be assigned to the current holders of sovereign debt on the condition that the lenders not remove the new treasury currency until the original maturity of the original debt.