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Alasdair Macleod: The dollar's debt trap
By Alasdair Macleod
GoldMoney, Toronto
Thursday, August 19, 2021
On the 50th anniversary of the Nixon Shock, this article explains why fiat currencies have become joined at the hip to financial asset values, and why they are about to descend into the next financial crisis together.
I start by defining the currencies we use as money and how they originate. I show why they are no more than the counterpart of assets on central bank and commercial bank balance sheets. Including bonds and other financial issues emanating from the U.S. Government, the individual states, the private sector, and broad money supply, dollar debt totals roughly $100 trillion, to which we can add shadow banking liabilities realistically estimated at a further $30 trillion.
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This gives us an idea of the scale of the threat to asset values and banking posed by higher interest rates, which are now all but certain. The prospect of contracting financial asset values is potentially far worse than in any post-war financial crisis, because the valuation base for them starts at zero and even negative interest rates in the case of Europe and Japan.
I focus on the dollar because it is everyone's reserve currency and I show why a significant bear market in financial asset values is likely to take down the dollar with it, and therefore, in that event, threatens the survival of all other fiat currencies. ...
... For the remainder of the analysis:
https://www.goldmoney.com/research/goldmoney-insights/the-dollar-s-debt-trap?gmrefcode=gata
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