A rising spirit of the times. You fed up yet?

J Pow wraps Jackson Hole Fed meeting with some thoughts

An update on the US $ and it’s hegemonic role as the world’s preferred reserve currency

The U.S. is 26% of the global economy, as measured by annual GDP.

US$ is still 58% of global reserves. It was already declining pre-Covid & pre-UKR War. Despite the massive $$ creation, mismanagement of Fed debt, and abuses of the dollar, it’s still in place for years ahead. 

I don’t see how it’s unseated without at least these conditions being present:

1. The emergence of a strong, proven, gold-backed alternative reserve currency, which will also require significant trust, deeper and more liquid capital markets than the U.S., and an open capital account (those last two are critical).

2. An emerging dominant world economy that has sufficient working population AND population growth, that can produce most of its own food, energy resources, and is protected by natural borders.

3. The ability for the lead country of that alt system to project power globally at a moments notice which would require:

A. both superior naval & air power

B. superior satellite & recon capabilities 

C. a fleet of nuclear powered air carriers

D. a fleet of nuclear powered deep sea subs

E. deep experience operating elite units in counterinsurgency scenarios

4. Given all of the above conditions, there would need to be a major war resulting in an uncontested unseating of the current reserve status position country

In addition to all of the above, it would require the development of global financial centers of trade to rival the West. For instance it might require Shanghai, Singapore, Hong Kong, and Dubai to collectively displace New York, London, and Tokyo. And all would have to be "off" of the US$ as primary mode of exchange/trade settlement, and reserves.

Remember that trade is settled and reserves are held primarily in US Treasuries, as they represent a nearly risk-free option. We have by far the deepest, most liquid capital markets and transparency.

What happens from here though with the amount of Fed debt we're racking up through PRINT+CTRL & Spend is up for debate. One could argue that a certain amount of "inflating our way out" will occur, as has been the pattern throughout history (American Revolution, Civil War, World War II).

I have also noted the following order of events proposed recently by an anonymous (but learned) financial pundit:

1) Credit downgrade so nations dump US treasuries

2) Rapidly raise rates

3) Restrict swap lines causing US dollar shortage

4) Stage "incident"

5) Dollar skyrockets

6) Panic spreads to financial system

7) Nations collapse

8) Print trillions & buy your cheap debt

Let's call that last sequence "just for fun". 

It's one that I'll save and reflect on later.

Welcoming all ideas, opinions, challenges, arguments, etc.