Time for change in the US dollar based monetary system is here!

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The United States of America has till date thrown in over 3 trillion dollars for covid relief. Thus, increasing US National debt at such a rate never seen before. At the time of writing this article, US National debt stood at a little shy of 26.5 trillion dollars. Thus, a debt per capita at over 80k in dollars per citizen.

We know, uncertain events such as this call for unprecedented action. The Covid-19 has stopped the economic cycle entirely all over the world. With over 130% in debt to GDP, the US is going to have tough times ahead. No, I’m not talking about its loan repayment. I’m talking of its repayment of interest over loan.  

As shown, Global debt-to-GDP at all time high reaching over 320%. Amounting a total debt of over 253 trillion dollar.

Unfortunately, it’s not just the US. The global debt-to-GDP ratio has peaked to its WW2 level. Moreover, the western countries are especially fond of credit. They are its new norms. But, spending that which you don’t own leads to creating such an event wherein you’ll have to liquify what you own for repayment. 

Saving for a rainy day is highly underrated amongst the present generation. Financial planners suggest having savings at over 6 months expenses. Saving is defined as a mode of lifestyle with limited consumption. Limiting our present consumption to provide for the funds in case of such uncertain events such as covid-19.

The importance of savings and wealth creation has become an endangered term. The paradigm shift tells us a lot about the change of global order, one among them is how a developed economy takes credit for granted wherein, the developing economy strives in saving and wealth creation only to replace the developed economy and follow the same path of debt pileup. It’s a loop, an unbreakable cycle where wealth transfers from one country to another. It’s time for an Asian country to hold the baton now.

As shown, the developed economies are more indebted than the emerging economies.

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As seen in the picture above, It’s those developed economies that are highly indebted. And, whom do they owe such staggering debt? Well, it’s funny to see that the developed economies owe these debts to the emerging economies (Not in entirely). I.e, China and others.

China being the 2nd largest economy in the world is still named under ‘emerging economy’. The same China holds over 1 trillion dollar in treasury bonds or about 5% of US national debt. With over 3 trillion dollar in Forex reserves, China is in a much more comfortable position financially than any other western countries. 

This systemic failure to recognize China’s position shows up the institutionalized corruption among the global organisations. Acting in favour of China over the years and communism as its governing & constituting body has led to such an enormous economically feasible environment for Chinese businesses that none could compete with them at domestic or global level.

On one hand, China is gaining power and the other way the US is losing its superiority in the global market. China now accounts for over 12% of exports in global trade valuing at over 4.5 trillion dollars. This recession ‘The debt based global recession – 2020’ has the capability to change the monetary system. US being the largest debtor and China being the largest creditor. It’s a change of power from the US to China. 

As quoted in an article The Elites Are Already Prepared For The Coming Collapse Of The Dollar Bubble” by Tyler Durden – Zero Hedge. The US dollar based Monetary system is at its brink of collapse and has made way for an alternate monetary system. 

I believe the alternative is something such as Crypto-Gold.

Feb balance sheet surge as shown in the above graph, Trump government had its intention to reduce the balance sheet by the end of the term only to double it due to Covid-19.

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The US president knew the debt pile-up and was on this thought to somehow reduce the fed balance sheet to its minimum level and then struck the covid pandemic. As of June 2020, the fed balance sheet has risen over 7 trillion dollar (as shown above). There is no way the US can shrink this balance sheet without calling for a major recession. The time for the major recession is on its way and the same to have a dire effect on a global scale.

Remember 2008, ‘The Great recession’. The one that negatively affected globally over 2 trillion dollar in economic growth, the stock market all over the world had its fair share of dark days and unemployment was at its peak for the decade. Those economists who predict a “V shaped recovery” are making a joke out of the pandemic. It’s just the beginning for we are to see a major correction in asset prices and this pandemic based recession could easily surpass the great recession.

The market crash was a long awaited one (Over 12 yrs in making). Every crash gives way for a new set of companies to flourish. But, such a pandemic based recession have the capacity to topple down an entire country and it’s currency system that was ruling the world for over half-a-century. It’s time for the end of US dollar debt based, value ridden monetary systems to end and make way for an asset based monetary system.

So, what’s the future then?

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World renowned investor Mr.Jim Rogers once said, “If you are living in the 21st century and wanna create wealth then you have to move to Asia”. World order changes and when it does, it creates this huge change of hands in power between countries. Although, a lot of economists and well known investors weigh in on China when it comes to the next superpower. I highly doubt it! 

Yes, I certainly believe the next future is in Asia. No, not the communist asia! The democratic capitalism that’s making way. China is a communist capitalist country that’s highly filled with corruption and concentrated wealth. There’s no denying the fact that China is one amongst the richest countries as of today. But, the major drawback is that China has its identity over a political party (CCP). If you are someone fond with political history then, you are certainly aware of the future a communist party holds. Yes, it’s not sustainable. Especially the way China behaves towards its neighbours.

I believe the future to lead with a new monetary system is amongst an Asian country. In my follow-up write, I’ll explain why not other Asian countries but India.

Disclaimer: All the information on this website is published in good faith and for general information purpose only. 

 

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Rakshith Pai
Rakshith is a CA aspirant with half a decade of investing experience. He manages a private fund management service, AUG Funds. Wherein, AU denotes Gold and AG denotes Silver, the two most precious metals on Earth.
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