Central banks are in an impossible situation of their own making
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Yesterday I described the past 50-years in terms of high population growth, globalization, and dollarization.
These factors created a virtuous feedback loop of growth and fiat-backed debt, making the U.S. dollar the supreme Fiat Kingdom. And this kingdom allowed Japan, the U.K., and Europe to build minor kingdoms with the yen, pound, and Euro, respectively.
But the conditions in which these kingdoms emerged don’t describe the future very well. The pro-growth, pro-capital, globalized world of yesterday is giving way to low growth, capital constrained, local markets.
Unfortunately for the kingdoms of fiat, the debt it took to build the world of yesterday is still here today.
Now, had that debt been used to create the productivity required to support it, then debt wouldn’t be a problem. But central banks have abused the dollar-fiat system over the last 20 years. Quantitative easing (QE) flooded the system with currency.
This squeezed the last bits of growth globalization could yield out of the system.
And with every additional debt-backed dollar, yen, euro, or pound yielding less spending bang for the “buck,” it’s now every fiat kingdom for itself…
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Yesterday I described the past 50-years in terms of high population growth, globalization, and dollarization.
These factors created a virtuous feedback loop of growth and fiat-backed debt, making the U.S. dollar the supreme Fiat Kingdom. And this kingdom allowed Japan, the U.K., and Europe to build minor kingdoms with the yen, pound, and Euro, respectively.
But the conditions in which these kingdoms emerged don’t describe the future very well. The pro-growth, pro-capital, globalized world of yesterday is giving way to low growth, capital constrained, local markets.
Unfortunately for the kingdoms of fiat, the debt it took to build the world of yesterday is still here today.
Now, had that debt been used to create the productivity required to support it, then debt wouldn’t be a problem. But central banks have abused the dollar-fiat system over the last 20 years. Quantitative easing (QE) flooded the system with currency.
This squeezed the last bits of growth globalization could yield out of the system.
And with every additional debt-backed dollar, yen, euro, or pound yielding less spending bang for the “buck,” it’s now every fiat kingdom for itself…
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