Brazil owes the US 10 dollars -- dollars, not Brazilian reals. In 1993 one dollar is worth say five reals. So 50 reals owed.

And for fun, let's say Brazil owes Brazilians 250 Brazilian reals. In 1993 one dollar is worth say five reals. So 50 dollars owed.

The Brazilian government decides to print some extra reals to pay the US back.

Sounds great. Let's say in 1995 one dollar is worth say 50 reals. So Brazil owes The US 10 dollars (or 500 reals) and Brazilians 250 reals (or $5.) Brazil's debt load has dropped from $60 to $15 through a mere factor-of-10 inflation!

I must be missing something obvious.

You missed the sleight of hand. 'cuz I'm printing reals for the explicit purpose of fucking my country. I can pay the fuck out of my domestic debt. That was the point. It's now nothing. All that cash you were hoarding? Yeah, eat shit. It's worth ten cents on the dollar. 'cuz my next move is to introduce La Nueva Real by lopping off a zero. I'm gonna exchange Reals for NRs at 1:10. And I'm going to peg the NR at 1:1 for dollars.

So even if I hadn't paid off my pensioners, I'd only owe them 25 NR. But I have. And even if I hadn't paid off the US, I'd only owe them $15.

Make no mistake: it's pure monetary destruction. It usually involves riots, unrest, panic in the streets, an upended social order, hoarding, all that superfun Weimar Republic shit. But then you get through to the other side and you're an economy again.

Think of it as a hard reset for an economy - a three-finger-salute for a kernel panic. Recovery is likely to be a bitch, and you will have lost data… but once you reboot, the system will run again.

Make sense?