TIPS compromise sovereignty

[stone]

I was wondering whether the existance of TIPS creates a default risk for all government bonds. Harry Browne (and MMTers and Alan Greenspan) say that government bonds in the government's own free floating fiat currency have no default risk because the government can always print any money needed to service them. TIPS seem to me to be a different matter. The inflation metrics used for TIPS do try as much as possible to reduce the effect of commodity costs but those do feed in nonetheless. So currency devaluation does increase CPI. That constrains the governments ability to print and devalue away any debt. TIPS seem to me to be an achilies heel for monetary sovereignty. With enough TIPS obligations, a country could put itself in the position of a Euro zone country such as Greece at the mercy of bond vigilantes. That would make holding fixed interest government debt subject to default risk just as much as holding the TIPS themselves.
I don't know whether the existence of TIPS should be thought of as favoring the likelyhood of deflation (and so be bullish for LTT) or of favoring the likelyhood of default (and so be disasterous for LTT). I suppose the intention is that all countries will engage in competitive devaluations and so the transfer of wealth will purely be from labor (and cash savers) to profits and not from one country to another. If the powers that be can execute that then they will keep their scheme on track. My worry is that the bond vigilantes will be able to single out individual countries one at a time. If the stock market and the currency of one country comes under speculative attack, then TIPS obligations could become impossible for that country. Once that country has been looted, the speculators could move onto the next country and so on.

[walkerjks]

TIPS are a small part of the US government's debt and are likely to remain that way for the very reasons you cite - it's tougher for a government to control the payout when they issue TIPS.

[stone]

Walker JKS, I just googled and came up with "Of that $9.11 trillion, $5.8 trillion was in intermediate-term Treasury notes, $1.7 trillion was in short-term Treasury bills; $931.5 billion was in long-term Treasury bonds, and $640.7 billion was in TIPS."

-So about 7% is in TIPS. I agree that that is a small fraction but it still seems a chink in the armour that doesn't typically get much of a mention.

[moda0306]

I think any government "contract" that's adjusted to inflation (social security, medicare (implied), TIPS, i-bond, etc) has the potential to get us into trouble... I wouldn't say "default" trouble so much as "viscous inflationary cycle."

By "viscous" I mean that as more of a general description than actual threat level.

Any of those contracts will probably undermine the flexibility our currency gives us to some degree.  Hopefully, though, most of these are payments to our citizens rather than foreign governments... and I'd assume they are.

Inflation may cause uncertainty, which is a parasite on efficient markets to some degree, but at least the Medicare, SS, and i-bond recipients are getting back most of it in inflation-adjusted return, and the dollars stay in the US economy.