| | | Just wow!
Very dense, very nuanced review of macro history since the 1971 closing of the gold window.
Quite difficult to summarize it in a few words, but I’ll try.
A huge amount of the world’s FX reserves are held in US Treasuries. Gromen believes that when the US basically eliminated Russia’s share of them on February 26, it was an act with enormous implications because as of then FX reserves were no longer super-safe for the entire globe. They are now known to be subject to the whims of an American President. It was, as Gromen calls it, the closing of the FX window
Rational actors will get away from US Treasuries because February 26 served notice that they are not the bastion of stability that they were once considered to be. Some countries have been moving away from Treasuries already, some have requested re-patriation of their gold reserves held in the US.
Gromen believes that the effects are varied. Initially, the very first effect is a movement away from the USD. Then, because there will be fewer dollars available to buy increasingly unpopular Treasuries, gold should rise. FX reserves previously held in US Treasuries will be recycled into the one asset that is no one’s liability. Also, it will end the bull market in bonds as interest rates inexorably rise. Because we financed our own industrial seppuku, our industrial base should rise again as foreign trade in USD becomes less advantageous. Gromen sees the new Tesla and Intel plants as examples.
I did my best, Jay. Translating this incredible discussion into layman’s language is not easy, so caveat emptor. |
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