The BoE has been around since the 1690s but was constrained by the gold standard until the 1920s. The Fed was formed in 1913 and was similarly constrained until 1971. Nevertheless, both the dollar and pound have lost about 98% of their value in the past century.
Contrary to what some people think both the BoE and Fed want to preserve the value of their currencies, not debase them through printing. It is Congress (US) and Parliament (UK) who continually overspend, forcing money printing, inflation targeting and interest rate manipulation. These governments also allow excessive lending by banks, bail them out, and permit a huge shadow-banking system - all of which cheapen the value of currency and cause inflationary pressures.
Correct up to here...
These currency systems will collapse eventually, like the Mexican and Argentinian pesos have (more than once), or the classic case of the Zimbabwean dollar. When it will happen is the real question.
False.
They *might* collapse, sure, but people fail to fully appreciate the reality of a modern fiat nation that issues debt solely denominated in its own currency. The Fed can simply BUY ALL THE BONDS on the market (they're already buying a large percentage) to keep rates at or near zero. If they do that, there's
no exponential feedback loop which requires more and more printing. The only printing that's required is to purchase all the outstanding bonds ONCE, and then to create enough new money to cover the on-going fiscal deficit.
So, yes...no matter what the dollar will be severely devalued. But saying that it *must* actually collapse 3rd-world style, you're not appreciating some key structural differences in how US debt is issued and managed versus the Zimbabwe story.
The non-collapse scenario might actually be worse since it means the nonsense can continue unabated, basically sapping productivity out of the economy forever. At least in the collapse case, after the massive short/medium term pain, some sanity would be restored for a generation or two.
