Right in the midst of the summer doldrums, some concerning news can be found this year. You just have to read between the lines of the infamous short-sighted essays of traditional economic analysis.
In my last post, I suggested that the days of extending and pretending, whilst playing the missionary role in the investors common knowledge game (that the Central banks have the investors back), were close to a point of no return. The game has evolved towards a bifurcation. I stand firm behind the assertion that CB’s will soon have to make a choice, opting either for deflation, and a falling domino of debt write-downs, or an explicit dilution of debt via hyperinflation.
After a fortnight of intense sail racing, and some sober thinking, I have concluded that the Fed’s next move will be crucial. The main Central Bank (sorry for the political sensibilities that might be injured when reading this) is the Fed, the issuer of what, up to now, is the reserve currency of our seriously flawed fiat currency global system. The rest are secondary players (more or less additional printing by Kuroda or Dragui, or a load of new credit via lower reserve requirements by the PBOC, will not change things substantially).
It’s the Fed that plays the cards now. Regardless of the eternal confrontation on SDR’s and everything related to the role of the reserve currency, what the immediate future may bring in this matter, is still to be seen. The USD is still the most relevant currency, notwithstanding the fact that its position is wobbly, and many other currencies are eager to take its place (CNY would love to).
But things are the way they are, at least at the time of writing this. An entirely new setup (show) is coming soon to your local cinema, but not before we write down most of the cosmic debt, or alternately dilute it seriously Zimbabwe style. My advice to candidates for taking up the USD’s role in a brave new world, would be “being careful for what you wish”. Advice that I am assured would not be heeded, even if I played a prominent role in the institutional infrastructure of this global fiat currency and credit Ponzi.
Even though being the reserve currency ever since Bretton Woods (in fact since WW II), has been great business in the past, in this particular case, past performance is certainly not indicative of future performance. It all comes at a cost, and the cost of dominance is rich today. I would not apply for the role. We live a world of accelerating change. Nothing lasts forever. Ask Eastman Kodak, Nokia, and the likes.
Banks, utilities (electricity providers in particular), or central banking, share a meager future. This is a strong conviction call I will go all in for. They are businesses of the past. Of course not immediately, it will take time for the crowd to realize that a new world order is emerging. Letting go of ideas, beloved ones, habits, or nearly everything else, is one of the most difficult things in human psycology. Just like a simple man -Graham Nash- once sung: “they Just Want to Hold on” even while saying and pretending “they Don’t Want to Hold things Down”. Continue reading