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The U.S. debt situation is different from other debtors in the past (and present) because the U.S. debt security is still the flight-to-safety security. Wait until banks, pension funds, and insurance companies see that the global depression is resuming. Even if China (which is only a bills buyer anymore, anyway) leaves the market for Treasuries, these other entities will be buying hand over fist. They'll see Treasuries as a great way to lock in real yield.

Even hedge funds will be buying Treasuries, because they are crowded short and will have to cover. Most funds are leaning the wrong way, short Treasuries and long gold, Apple (NASDAQ:AAPL), and worthless bank stocks.

This will be the opportunity for the Treasury to roll that $1.8T in bills into longer term notes.

Eventually we'll reach a day, like in fall 2008, where the financial system is only a day away from collapse. If they've played their cards right, there will no longer be $1.8T in outstanding bills - maybe it will have been refinanced with 10-year bonds at 2% yields!

At that point, the Fed can start the inflation machine. They won't have to worry about roll risk, just the optimal pace at which to devalue the currency and fleece the funds and institutions that stampeded into Treasuries at the all-time peak.

To reduce the real value of a 10 year Treasury by 75% before maturity, you need to inflate by 13% per year (check: 0.87^10=0.25).

So, I will be monitoring the monthly schedules of federal debt published by the Treasury. When I see that they have made sufficient progress refinancing, I will go all in on inflation. Until then, I am strongly deflationary.

Source: Squaring the Inflation-Deflation Conundrum