Currency failures could be the next chapter of the current inflation and sovereign bond crisis.

The slow-motion crash of the 24 trillion USD treasury bond market in 2023 is destabilising the pillar of global finance.

The five known bank collapses in 2023 have morphed into potential hundreds of US banks risks of failure in 2024.

The piece writen a year ago, May 2023, entitled Bank Runs, was a mind eye into the future.

Currency Failures
Central Bank-Induced Crash

“The slow-motion crash of the 24 trillion USD treasury bond market in 2023 is destabilising the pillar of global finance”

WEALTH TRAINING COMPANY

“SVB is no isolated case and could lead to contagion and other bank runs. Central bank rate hikes have now triggered a systemic crisis in the bond market. US Treasuries are pledged by commercial banks to underwrite loans and are the collateral of the entire Western banking system.

The inflation fight is over. Fed will print to save the banks. People will shoulder an even more diluted currency as their standards of living fall,” Darren Winters.

Fast forward a year, and here is the headline in May 2024, Why hundreds of US banks may be at risk of failure.

“You could see some banks either fail or at least, you know, dip below their minimum capital requirements,” Christopher Wolfe, managing director and head of North American banks at Fitch Ratings, told CNBC.

Central Bank-Induced Crash

“You could see some banks either fail or at least, you know, dip below their minimum capital requirements”

CHRISTOPHER WOLFE

The mechanics behind sovereign debt crashes and currency failures leading to wars

Diminishing returns from expansionary fiscal and monetary policy as a tool to impact the economy nears when the national debt exceeds the annual worth of the economy.  

So when the public deficit exceeds 100% of the GDP, the risk of monetary inflation leading to currency failure grows.

If the currency is a reserve currency, such as the USD, used in international transactions, then the currency can shoulder a higher public debt-to-GDP ratio. 

A country with a reserve currency has an exorbitant privilege because it can obtain vital commodities, goods and services by printing its currency, absorbed by global demand for its paper or bonds. 

Stability in the exchange value of the reserve currency is why the world saves in the reserve currency. 

“The 2020 lockdowns, shutting down production and showering the population with helicopter money, triggered inflation and accelerated the public deficit from 20 trillion USD to 34 trillion today” – Wealth Training Company

What causes currency failures in the reserve currency and its derivatives?

Imbalances in the bond market are the crux of the 2023 crash in the 24 trillion USD treasury bond market and bank failures.

When the supply of treasury bonds from a ballooning public deficit exceeds the demand for those bonds, the market value of those bonds falls, leading to investor losses. 

Treasury bonds have been viewed by generations of investors as safe-haven assets. Investors had it imprinted in their minds that bonds were for pensioners and orphans. So, maturity risk of holding those bonds has been significantly underestimated by the most conservative investors, the pension funds, and the banks. 

Moreover, for a decade, bond yields and interest rates were kept artificially low in the monetary easing experiment in history.

So, to compensate for the low yields, pension funds took up highly leveraged positions in the perceived safe haven treasury bonds.

The 2020 lockdowns, shutting down production and showering the population with helicopter money, triggered inflation and accelerated the public deficit from 20 trillion USD to 34 trillion today.

Fiscal recklessness and monetary madness triggered a run on treasury bonds. The Fed’s attempt to tame inflation has failed but succeeded in creating the worst treasury bond crash in history and causing currency failures in USD derivatives

Recently, Japan overtook China and became the largest holder of treasury bonds.

Japan’s debt to GDP is 262% in 2023. For the Japanese Yen, going further into debt to buy treasuries, which insiders are now calling toxic slush, triggered a Yen crisis as the currency depreciates against the USD. 

Currency failures give the USD the illusion of stability

Is it a coincidence that the two countries Germany and Japan, who were both bombed into oblivion, the latter nuked twice by the US in WW2, are shouldering the financial and economic fallout of waning US hegemony?

The queen ant sacrifices her colonies to retain the hegemonic throne. 

As inflation worsens, multi-front wars escalate as we see the hard power of an Empire playout. The hegemon’s world order is being enforced in a global war. But with nuclear weapons in the equation, the outcome looks apocalyptic. No one side has an absolute advantage. The rapid escalation from low-yield tactical nukes in WW3 to high-yield strategic city killers is terrifyingly real. If Hitler and Emperor Hirohito had nukes in WW2 they would have used them. 

“the rise of the crypto tribe, using cryptos as a medium of exchange in an increasingly digital age, looks promising” – Wealth Training Company

Currency failures and multi-polarity monetary systems 

The naked ape is a natural optimist. 

Planning for the apocalypse is a waste of time. When you are dead, what is there to plan?

So, as debt-ridden currency failures spread to other USD derivatives, GBP or maybe the EURO, we will see the rise of multi-polarity monetary systems. People will want and need to transact, but it could be in various forms of money. 

Commodity-based currencies, BRICS is accelerating the launch of a new global currency backed by commodities. 

Ancient precious metals tribes could finance large transactions with gold. 

But the rise of the crypto tribe, using cryptos as a medium of exchange in an increasingly digital age, looks promising. 

CBDC could also be a new way of transacting, but trust in central banking could require something accepted and widely trusted by the public. CBDCs backed by BTC and or Gold?

Currency failures, financial repression

Bond investors are already seeing yield suppression and rates kept below inflation. Capital controls and Executive Order 6102, forcing gold investors to sell to the government below market rate, are examples of financial repression. Investors who hold cryptos on exchanges could have their cash withdrawals limited to a fixed sum every month. Holding the private key of your cryptos prevents this. 

Something similar could happen with Cash depositors.

Don’t be surprised if currency failures lead to a melt-up in tangible assets.

When cash is trash, even risky stocks perform better.   

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