The current global monetary-financial-economic paradigm we operate within, is fast reaching a conclusion. The United States reserve currency hegemony, essentially created by a petrodollar relationship established in the 70’s between the United States and Saudi Arabia, is being tested on multiple fronts. If China and Russia manage to create a viable alternative to the USD in global trade, then the Anglo-American empire is dead. Therefore, it must maintain USD hegemony to continue to finance its war apparatus.
It shouldn’t come as a surprise to learn the U.S. is running budget deficits financed by the creation of U.S. treasuries. Additionally, investors bought these ‘safe’ assets, as they are backed by the U.S. taxpayer. However, China and other major purchasers are tiring of these debt-securities. Cheap finance may soon end, along with the secular bull market in bonds. If investors liquidate their holdings, and create massive downward momentum, it would spell the end. Therefore, the Federal Reserve would likely step in and expand its balance sheet.
The FED already has roughly 4.5 trillion dollars of nominal value on its balance sheet, and there is no reason why it couldn’t start directly monetizing the debt of the U.S government. The U.S. government debt ceiling has been raised to twenty trillion, not to mention the unfunded liabilities that are estimated to be around 40-60 trillion. The empire is facing major challenges, some it created itself. On one hand, it slowly gutted its manufacturing sector by taking advantage of liberal trade policies and invested in low-wage economies to generate value for stockholders. This moved jobs, GDP, human capital, and other positive externalities offshore. And on the other hand, it used substantial resources to dominate and subjugate various economies and countries with its enormous military and influence. The opportunity cost of maintaining the futile empire is unimaginable. The rent-seeking parasites and their myopic obsession with wealth aggregation has drained the fabric of society. All the empire has, is it’s ability to push its debt onto others. It must keep the USD favorable or implode.
The colossal derivatives quagmire, leveraged from U.S treasuries etc, is used to manipulate and play the futures markets. The price of gold is being manipulated by naked short selling paper gold contracts onto the market. Suppression of the gold price is favorable, however, to China, Russia, India, etc. They are importing on a large scale and keeping internal production. They are hedging for a collapse. They don’t want to be just holding paper and worthless claims to paper when the music stops. Gold is liquid and has no counter-party risk. It is superior to other commodities.
With the Federal reserve rate at essentially 0%, the ending of the secular bull market in bonds, QE(x), ZIRP, NIRP, malinvestment, worsening demographics, peak private debt and consumption, war, hyper-leveraged zombie banks, intellectually dishonest and corrupt leadership, bloated incoherent bureaucracies, it is only a matter of time before the USD is put on the pile of other failed currencies. There is no other way. They could let the financial/monetary system and the empire collapse, along with their precious paper wealth, employment rates, and initiate an epic depression, or they can inflate the debt away and eventually kill the dollar and the empire. Bad news either way. So, kicking the can will be the option taken. With the FED jaw-boning the market, and having not raised rates for seven years, it is a dubious idea to think they would suddenly become responsible. Neo-Keynesian economic thinking is reaching the end of the line. The FED will expand its balance sheet, NIRP will likely be initiated, savers will be killed. It is an illusion. One day soon, the great deleveraging will happen. No amount of easing or manipulation can continue into perpetuity. For every single action, there is an equal and opposite reaction.
A geopolitical transformation is taking place. Will the U.S. throw in the towel, or will it rampage into oblivion? I can’t forsee. But I get the feeling the whole world will receive a free lesson in economics that they won’t be able to ignore.