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Alasdair Macleod: Underestimating debt traps
By Alasdair Macleod
GoldMoney, Toronto
Thursday, December 14, 2023
The sharp decline in U.S. Treasury bond yields anticipates a pivot in Federal Reserve policy, which appeared to be justified this week by Chairman Powell's dovish tone. But the Fed is not in control of events.
Given that it was U.S. monetary policy that led the way up in interest rates, the dollar was strong against other currencies, creating opportunities for interest rate arbitrage. There is no knowing its scale, but we can expect it to be unwound post-pivot and should not be surprised at continuing dollar weakness.
In short, a floor is being put under U.S. price inflation through the exchange rate.
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The far greater problem is that the monetary conditions of the 2020s are turning into a repetition of 1970s, but with added vengeance. This article explains the dynamics leading to higher interest rates in the coming years, higher bond yields, and the threat of hyperinflation -- all evident in the years following the Bretton Woods Agreement suspension.
In 1971 U.S. government debt to gross domestic product was only 34%. Today it is more than 120% It is principally in this difference that the catastrophic consequences for the dollar lie, being firmly gripped in a debt trap. Furthermore, with the single exception of Germany, the other G-7 nations are similarly ensnared.
These dynamics are not openly discussed in official circles, but by their actions in accumulating as much gold as is available, non-U.S. central banks are fully aware and frightened by the likely consequences. ...
... For the remainder of the analysis:
https://www.goldmoney.com/research/underestimating-debt-traps?gmrefcode=gata
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