I often times disagree with Mr Prichard (or in this case it might be one of the others quoted, not sure who said what).

"They are running down reserves by selling US and European bonds, leading to a self-reinforcing feedback loop," said Simon Derrick from BNY Mellon.

Mirza Baig from BNP Paribas advises them to embrace devaluation, calling it futile to defend quasi-pegs. "The costs of fighting are spiralling out of control," he said.

Mr Baig said foreigners bear 90pc of the currency risk in Malaysia, 81pc in Thailand, 79pc in Korea and 74pc in India. So let them take the haircut. Should these countries take that course, they will inflict a deflationary trade shock on the West.

The part I take exception to is the part I put in bold above (my emphasis). I very well could be wrong but I see it as inflationary for the West, not deflationary. I suppose it could cause a temporary deflationary burst................................ ehhhh I don't know.

We exported the inflation to other nations. They held our debt. Some of that debt came about maybe from existing money supply. In other words maybe we did not create all the bonds fresh and new. But a lot of it we did. That debt was what the foreigners got in place of the goods they sent us. We did not produce enough goods here in the US to sell to those countries so we had a deficit trade balance. We got goods, they got our promises for dollars later (debt - like what Denninger calls the Popeye Wimpy syndrome - I'll gladly pay you next Tuesday for a hamburger I wish to eat today).

So those potential dollars (future tax revenues to pay it) sit in the vault of a foreign bank not doing anything. But if they sell that debt for Dollars, there are more dollars now buying goods and in circulation. (It might be easier to think of in terms that they just hold the instrument till maturity and collect the dollars instead of rolling it over into a new debt instrument. When the debt matures, it has to be paid for. If we do not have the money to pay for it, the Fed buys new debt from the Treasury and gives them freshly created new dollars to pay the bills.) Dollar monetayr inflation.

I may be missing something here, but it looks like to me if foreigners start dumping our bonds it is inflationary to us. If they buy real goods with the proceeds it will be new money that was previously locked up now put into circulation.

I very well could be wrong in my thinking and would like to know it if I am.

John