I suspect one of my dogs could have written something more in depth and less simplistic than that Forbes article.
The problem is much, much, much more complicated than “No worry, your bonds are safe because Uncle Sam has the authority to print money to pay you with”. If so why did Argentina default on her debt leaving a wake of economic devastation felt to this day? After all they had to do to keep up their commitments was to print more money. As easy as that.
The first “problem” is what economic history tells you. When you get to the point of having problems servicing your debt (which nowadays means something as pitiful as having to pay 4-7% of the budget in interests, we’ll get to that later) it means you have already bled the country dry. It means the “wealth consumers” have won the battle with the “wealth producers” and have effectively siphoned money from the most productive part of the society into improductive ventures where capital is destroyed. Greece is a perfect case: people with capital couldn’t invest them productively at home. They had to either send it abroad or hide it underground (where it cannot be effectively used) to avoid seeing it destroyed. To make up for this shortcoming of domestic capital, governments usually turn to foreign investors. Problem is foreign investors don’t go into countries like Greece or Italy, well known for the rapacity of their governments, out of a whim or because the prime minister sent them a nice letter. They want precise, written guarantees about their investments. Problem is governments and their cronies (mostly unions) are very prone to breaking these guarantees. When it happens, foreign investors just use breach of contract to get their capitals (legally) out of the country and other potential investors just stay clear.
The second problem is what inflation does to capital and consumption. Modern bureaucrats have devised all sorts of trickery to keep CPI and IPI nominally low, mostly to wow the economic illitterate and their banking pals with their skills at “keeping prices stable”. However reality is completely different. In periods of economic instability, inflation always goes up because governments cannot resist the temptation of using the printing press. This goes from the highly sophisticated, like Japan “exporting” inflation through the yen carry trade to the blunt, like the Iranian government handing people wands of cash to “boost consumption”, but it’s always the same. Rothbard had this covered very well. Usually salaries and incomes fail to keep up with this hidden inflation: most contracts are written around official CPI and IPI figures. Capital and consumption get eroded: it’s only a matter of time. Propaganda and trickery only get you so far.
The third problem is how currencies are linked one to another. In the years between the abolition of the Bretton Woods treaty and the birth of the euro there were three main currencies the others were linked to directly or indirectly : the US dollar, the German mark and the Japanese yen. Except for the Voelcker years, the dollar has always been a very inflation-prone currency. The same applies to the yen, though the pace of money creation somewhat slowed down after the Bubble Economy burst in 1988 because of serious inflationary concerns. The mark, however, was an oasis of relative monetary stability. Once the mark was taken care of (like a Mafia don takes care of his enemies), the last restraint was removed. Moreover central banks are linked between them by a long list of treaties and agreements. When the Fed started QEI, it didn’t act alone. When the ECB started enacting its own version of QE last year (still ongoing), it didn’t act alone. When the yen experienced wild fluctuations in the aftermath of the Fukushima disaster, other central banks intervened to quell the instability. The end result is always the same: more inflation whatever the currency. If you want definitive proof, there’s only one currency to look at: gold.
The fourth problem (I could go on but I’ll stop here) is how government budgets are strained nowadays. Budget surpluses are almost unheard of in developed countries. If governments were private entities they would be always flirting with insolvency or be downright bankrupt. Expenses are non-negotiable, meaning they cannot be cut. In this situation the 4-7% I quoted early as the maximum for debt servicing is perhaps excessive, especially with countries with very strained budgets and which have bled the productive sector dry already (Italy, Greece, Spain etc).