Keep pulling the thread on Lyn Alden.
Lyn Alden asserts that gold has performed well despite positive real interest rates, a dislocation from its historical trend, which she attributes to the market pricing in an era of fiscal dominance.
In the current US economic environment with federal debt over 100% of GDP, raising interest rates increases the federal deficit more significantly than it slows down private bank lending.
The freezing of Russia's foreign reserves following its invasion of Ukraine served as a wake-up call for other nations, demonstrating that even large countries' reserve assets are vulnerable to seizure.
In the United States, the annual federal fiscal deficit is now larger than the net total of all new bank lending combined.
The United States has recently entered a state of 'fiscal dominance,' similar to Japan, where raising central bank interest rates expands the fiscal deficit more than it contracts private credit, potentially accelerating total credit growth.
The resilience of the US dollar system is primarily supported by approximately $18 trillion in cross-border dollar-denominated debt, much of which is owed between non-US entities.
Lyn Alden characterizes the current decade as "macro-heavy," driven by fiscal dominance, massive liquidity injections, subsequent central bank tightening, and geopolitical issues.
During the COVID-19 crisis in 2020, a scramble for US dollars led to a rapid sell-off of US Treasuries that broke the market, with many off-the-run treasuries experiencing no-bid situations.
In the United States, the sum of net new bank loans plus corporate bond issuance is now roughly the same size as the annual federal deficit.
Lyn Alden argues that the negative effects of deindustrialization in the US, caused by the dollar's reserve status, now outweigh the benefits received by the financial sector and government.
The BRICS and the Shanghai Cooperation Organization are forming a consortium to promote bilateral trade settlement in local currencies as a move to de-dollarize payments.
China has surpassed the United States to become the largest trading partner for the vast majority of countries in the world.