Could you explain how third world debt write off inflates currency?

It seems to me it would deflate currency. Such as when a debt is defaulted. Please explain.

Chad, when a country prints money and uses it for non-productive purposes, where there is no corresponding real wealth created, they are debasing the currency. They can do that by dropping bombs on the countryside of third world countries, as the Americans prefer to do, or they can write off debts of those third world countries, as the Europeans choose to do. Either way, there is virtually no return on capital, but the money was still printed.

There is of course some minor return, because eventually the “smart� bomb technology is worked into commercial applications. But let's just agree that there is little positive return for the $100 or $200 billion per year being spent by America annually in Afghanistan and Iraq. If only those 150,000 soldiers could be at home building roads and bridges, pipelines, homes and office buildings.

But, why are the Europeans writing off debt today? They simply cannot stand by and watch America debase its currency, because that puts too much pressure on their export and tourism industries, so they want to move in lock-step with the Americans. The currency war is a simple game of “you drop your currency by 10 pct, we drop our currency by 10 pct�.

Other than, printing more money today, the only other way for Europeans to debase their currency is to write off debts.

But to print more money in the normal course, a central bank has to buy securities from the commercial banks, which gives the commercial banks more money that they can lend out on a multiplier basis, which pushes up the price of bonds, and yields down, which is what the central banks are now trying not to do.

If you look back over the past several hundred years of history of capital markets, the only significant periods of inflation occurred as a result of war. Wars printed money that went into the financial system. But when you build an F/18 or a Trident missile, or a tank, there is no return on capital like there would be if you built say a commercial airplane or commercial office building or a university or a factory that produces micro-chips.

By printing money and not creating corresponding wealth, you are creating inflation.

As an aside, although it is a philosophical issue, in the case of bombs versus debt write-offs, which action do you think the third world prefers?