Transition From Debt Default And Dollar Demise To A Digital Bridge Currency Recovery
Currencies / Fiat Currency Dec 04, 2023 - 06:44 AM GMTBy: Raymond_Matison
Over recent years much has been broadcasted, written and u-tubed about an impending global fiat currency collapse resulting from excessive debt, likely central banking loss of control over monetary systems manifested by increasing volatility of interest rates, rise and expansion of BRICS country membership with increasing global influence in economic/monetary and military power, and technology solutions for instant payments and settlement fostering a global digital asset revolution which will make banks much less relevant in the near future, while one such possible digital asset innovation could make whole, over time, the purchasing power losses for global holders of our nation’s destructive and overwhelming national debt.
Our present monetary system
Ever since the formation of the nation’s Federal Reserve Central Banking System over a century ago, expansion of our nation’s currency has required a concurrent issuance of debt. Through the issuance of such national debt, and credit issued by banks, currency is created and released into our economy. What has been created through this debt-based money-issue system is currency, which by government declaration (fiat) and military threat becomes accepted by a nation’s citizens as money - a medium of trade and unit of value.
Money should also be a good store of value; but all currencies and most forms of money fail to be a long-term store of purchasing value. Persistent increase in our debt and currency supply creates delayed price inflation, that is, an increase in the price of goods. Our monetary system, by its very design, must continually increase that currency supply since the credit/currency issued through banks and interest on the existing debt-based currency does not exist, and must be created through the persistent issue of additional currency. Thus, the growth of any country’s currency in such a system must be endless. Such persistent increase in currency makes it necessarily less valuable over time, as its issuance continuously reduces purchasing power and ultimately reduces it to its real intrinsic value of zero. For example, just since 1971 even using government “adjusted” CPI data, the purchasing value of our dollar has declined by 86.7% - a devastating reduction within one worker’s lifetime.
Money defined in the U.S. Constitution is limited to gold and silver. Gold and silver have functioned as good stores of value over centuries. But, because of decades-long government manipulated precious metal markets they do so imperfectly. Governments need to, and have been suppressing gold and silver market prices for decades, since allowing their price to rise acknowledges a failure of the fiat currency and its deficient debt-based monetary system. Money such as gold has no risk exposure to another entity to guarantee performance; it has no counterparty risk exposure thus eliminating the risk of devaluation or default, and because it cannot be produced at prices comparable to producing currency, it is not inflationary.
Our unpayable mountain of debt
At present, our acknowledged national debt exceeds $33.5 trillion, and unfunded liabilities by credible estimates exceed $200 trillion. As this debt has grown from persistent excessive spending and growing interest costs, Congress from time to time must approve to expand its legal debt limit. If, in order to avoid default, we must extend our legal debt limit and borrow additional funds to service that national debt – how sound is that debt? If our nation has an inability to service its debt without taking on more debt, are we not already in practical default, and is the system really not a Ponzi scheme?
Consider that fifteen years ago Charles Goyette author of “The Dollar Meltdown” (2009, Penguin Group) came to a conclusion with respect to the repayment of our national debt when, by comparison, it was only $11.9 trillion. He states then: “The gross federal debt is 80 per cent of GDP. That’s the highest it’s been since the 1950s. But that percentage of debt was much more manageable then because fifty years ago America was a creditor nation, now America is a debtor nation. Fifty years ago it maintained a trade surplus, now our trade deficit, having grown for a generation, is immense. Fifty years ago America was the world’s manufacturing hegemon, now America’s manufacturing base is being lost to the world. Fifty years ago Americans were savers. Now the Chinese have shown us what it means to defer consumption and save.”
He continues: “America’s debt at any level - $12 trillion, $59 trillion, or $99.3 trillion – won’t be paid. They will simply be rolled over again and again until America’s creditors are unwilling to loan any longer. To recapitulate, inflation in the United States is a result of the Federal Reserve turning government debt into money. The Federal Reserve is central to America’s most devastating bubbles, and is responsible for almost a hundred years of criminal-scale dollar destruction. By debt monetization, government acquires money to spend without debate, legislation, or vote, by commensurately devaluing the currency held by the people. No wonder critics say, this amounts to nothing less than taxation without representation. In truth, the nature of the U.S. debt is so enormously understated that it amounts to accounting fraud.”
Presently, the Fed wants to keep interest rates high to make sure that cost inflation is suppressed, while our government wants rates low so that federal debt costs remain low, and real negative interest rates can inflate away our national debt. A 4% inflation rate depreciates a government of $33 trillion debt by $1.3 trillion a year! But the dwindling group of treasury bond buyers will demand higher interest rates for accepting a higher risk of default or loss of purchasing power. Since our interest on national debt now approaches and will soon exceed our scandalous spending on “Defense” (or is it really for Offense), we are a nation beyond a capacity to recover.
In recent years America has experienced a shortage of computer chips strangling some industrial production, and important or even life-saving medicines whose supply could not be obtained from its foreign manufacturers – corroborating Mr. Goyette’s observant assertions. In addition, our national debt to GDP ratio has risen from the afore-mentioned 80 % to the present 122 % – so our debt will not be repaid, and we are moving towards official default.
Fundamental basis for fiat dollar demise
Economist authors Carmen M. Reinhart and Kenneth S. Rogoff in their book “This Time Is Different” (2009, Princeton University Press) state that “A government that defaults on its debt cannot be relied upon to preserve the value of its currency”. Since 1971, the Consumers Price Index implies that as of 2022 the dollar has lost fully 86.7% purchasing value, suggesting a form of default. In this context, it should become extremely disturbing to those presently retired and those working who pay into the government’s retirement program expecting to retire in the next decade to realize that the trust funds for Social Security, Medicare and other government programs are funded by purchasing value-losing U.S. Treasury securities. Also, it is worth restating that government debts are never truly repaid, but rather rolled over with new debt of reduced purchasing value. This can only continue as long as America’s creditors, foreign and domestic, are willing to participate in the continuing Ponzi scheme and “invest” to own U.S. government securities.
Over decades, China has been buying and holding U.S. Treasury obligations and at one time was the largest holder of U.S. debt, which allowed the U.S. to maintain its social programs and military spending. In recent years, the U.S. has been trying to destabilize the Chinese economy; now that it may have partially succeeded, China is implementing an appropriate response.
When China reduces its purchases or stops buying them completely, or starts selling its massive holdings of previously purchased U.S. Treasury securities - as they are now doing, this action together with other nation’s stated goal to avoid using the dollar in trade, means that the dollar will not be able to maintain or regain its exclusive global reserve currency status. America’s control of the global economy and global reserve currency will be burdened through China’s and BRICS alliance’s sale of U.S. Treasury securities.
Fundamental basis for BRICS ascent
The BRICS countries of Brazil, Russia, India, China, and South Africa at their August 22-24 meeting in 2023 accepted applications from Saudi Arabia, United Arab Emirates, Iran, Egypt, Argentina, and Ethiopia to join their association. Because our authoritarian arrogance has alienated other countries, there are now at least another twenty countries who are interested in joining BRICS which are likely to be accepted in the near future. Thus, over time this alliance will become larger and stronger economically and militarily than the Anglo and European colonialists, and combined NATO members.
This BRICS expansion, accepting six new resource rich members, increases its economic might, while their apparent acceptance of digital technologies with empowering regulation provides a global counterweight to the current dollar hegemonic system. This implies that these countries will bring about the eventual demise of our present global order, and bring about a new competing multipolar world governance, increasing freedom of people all over the world from historically adverse colonialist monetary, financial, and deadly military consequences.
These countries are joining BRICS to assert their sovereignty and to avoid our weaponized dollar system, which puts every country at a financial disadvantage relative to the U.S. Accordingly, they are working on a trade settlement system for BRICS that would also eventually become a credible challenger to the U.S. dollar. Oil today is, and has been, the commodity backing our global dollar currency. With BRICS nations now controlling 80 per cent of global oil, it can back any currency of its choice.
Once the gold market price stops being suppressed with short derivative contracts, seeks and gains its true market price, gold will have multiplied in value. Currency backing with gold, utilizing a blockchain can provide faith in a new monetary system wherein each country is responsible for the quality and amount of its money. Intercountry currency values will be determined by the independent and sovereign action of each country’s monetary policies. Trade between different countries is settled by their relative currency values which are exchanged or settled by a global settlement currency which stands separate from individual country influence.
In this context, a separate BRICS currency is not necessary, as BRICS will not be able to govern a single combined currency as its membership expands. Therefore, they may retain and expand their individual sovereign currencies, and use a digital bridge currency for trade and settlement. This may also mean that a gold-backed currency, somewhat feared in the west, may also be unnecessary. Similarly, an IMF currency will not be necessary or even accepted by the legion of countries who are, or desire to be members of the BRICS coalition because they have experienced over preceding decades and even centuries the consequences of colonialism. People and countries have long memories of their depredation. Finally, there will be no need for a new reserve currency as countries abandoning the dollar will simply use their own national currencies with a nongovernmental digital token bridge currency to intermediate.
This growing BRICS alliance of natural resources does not have to compete with the present world order, or try to overthrow it; the countries which have officially announced their intent to abandon the U.S. dollar for trade, simply create their own parallel economy and operate in their own separate space apart from the developed West, but the West no longer controls this world.
Other fundamental drivers to rise of global challengers
Some critical thinkers have stated that the difference between a conspiracy theory and fact is - time. That is to say that many conspiracy theories become proven as fact over time. One such conspiracy theory was/is that in the 1960s, treasonous but indigenous non-governmental forces took control of the White House by assassinating the then president John Kennedy. Government policy, allegedly, had been captured by Neocons and we have as a nation increasingly adopted war policies as our go to option in resolving geopolitical issues. Remember, that this despicable event took place just a few years after president Eisenhower’s warning about the military/industrial complex.
Ron Paul in his book “End The FED” (2009, Grand Central Publishing) observes that long wars are made possible since the establishment of the Federal Reserve System because it makes unlimited amounts of money available for military conflict. Accordingly, it is in times of war when our nation experiences our greatest budget deficits, and when the most printing of money takes place. Consequently, we experience the greatest amount of inflation when the nation is involved in war.
We are now deeply involved in our latest proxy war in Ukraine. It will be/is highly inflationary for America, and by extension for the rest of the world while we control the global dollar reserve policy. This experience should remind us of our economic history after WWI, WWII, Vietnam War, Iraq, and our long war in Afghanistan. We are to experience unfavorable economic events similar to those in these prior periods.
Ron Paul importantly states: “It’s my own view that ending the Fed would address the most vexing problems of politics of our time. It would bring an end to dollar depreciation. It would take away from government the means to fund its endless wars. It would curb the government’s attacks on the civil liberties of Americans, stop its vast debt accumulation that will be paid by future generations, and arrest its massive expansion of the welfare state that has turned us into a nation of dependents.”
Back in 2009, Jerome R. Corsi, Ph.D. published a book entitled “AMERICA FOR SALE”, (Threshold Editions, a Division of Simon & Schuster Inc.) subtitled: Fighting the New World Order, Surviving a Global Depression, and Preserving U.S.A. Sovereignty. In it (page 102) he writes: Noted Harvard Economist and bestselling author Niall Ferguson sent tremors through world financial markets in February 2009 when he announced in a speech in Ottawa, Canada, his studied conclusion that the global economic crisis had only just begun. Before the economic crisis is over, Ferguson warned, there would be civil violence and governments would be toppled. Disagreeing with Bernanke’s assertion that the 2009 economic recovery could begin in 2009, Ferguson told the Canadians, “There will be blood.” Ferguson warned the economic downturn was “a crisis of globalization” that would not end soon. “A crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries,” he warned. “It will cause civil wars to break out that have been dormant. It will topple governments that were moderate and bring in governments that are extreme.” Ferguson explained his view that the current crisis is a crisis of debt leveraging: ”It’s a crisis of excessive debt, he explained, and the deleveraging has barely begun.”
That crisis, which had started to accelerate well over a decade ago, has not yet ended. In 2009, our national debt was $11.9 trillion, or just 33.5% of the present debt when Ferguson was describing that crisis! Today, with war in Ukraine, and serious new conflict in Golan Heights, Niall Ferguson’s predictions finally seem prescient. The government’s supply of treasury bonds is increasing rapidly as refinancing needs due to maturing debt rise dramatically during future years, while demand to purchase them is decreasing both internationally and domestically. Based on our present course of coming events, it is quite likely that after our financial system collapses, our social order too is likely to implode.
Martin Armstrong, founder and developer of Armstrong Economics, and his famous Socrates market and geopolitical prediction program was invited as an extremely knowledgeable and successful international money advisor to participate in an audacious secret plan between Russian oligarchs, New York bankers, and Neocons in our government. His knowledge of this plan, and his decision not to participate, and in order to keep this plan secret, unjustifiably cost him seven years of his life in prison, and but for his unexpected recovery from a beating-induced coma while in prison, we the people would not be aware of any of these nefarious dealings. Now, since some documents from president Clinton’s presidential era have become declassified, Mr. Armstrong, using these declassified documents has authored a book of monumental importance: “The Plot to Seize Russia” (2023, Gatekeeper Press). This book could be considered as honest blowback to a corrupt system.
His genial, expository and clear writing on money, debt, banking, economics, and geopolitics makes this book a “must read” for all concerned with the state of our world. Therefore, these selected quotes from his 600-page book are not to be dismissed: “We are looking at another 1931 mass extinction of sovereign debt in the years ahead. For this system of endless borrowing with no intention of paying anything back is coming to an end.” Further he observes “War is now necessary to mask the economic collapse and the coming of sovereign debt default.” And as an additional warning, he states: “I am more concerned about what form of new government will emerge since no government will survive this time.”
Digital asset technological developments and our new monetary system
If our democratic, republican form of government is actually controlled by an unelected group of corporate, neocon, banking, Council of Foreign Affairs, WEF, bureaucrats, or other grouping of influencers, which necessarily use our currency to extend its global dominance, then the possibility of having a new monetary system which creates a permanent record of its usage or nongovernmental issue of money, which could compete with the FED and the banking system is deadly to its control. If these unelected and undemocratic forces are to maintain control – they must destroy this new digital technological competitor. It is that you either destroy the crypto industry domestically, or you lose control of your global empire! Could that be the real explanation of our government’s resistance to blockchain transparency, enabling regulation, and private crypto money?
Another possible reason why U.S is not regulating the crypto industry is that regulation provides the crypto industry an implied aura of approval. Regulation also allows institutions to market crypto products fostering more rapid adoption. It is easily forgotten that the need for crypto actually comes from the deficiencies of the fiat money system. Without persistent loss of value due to inflation, perhaps crypto would have never been developed.
It is clear, that the rest of the world is notably ahead of the U.S. in providing thoughtful regulation that promotes its adoption. By contrast, our government is trying to kill crypto and digital asset adoption and delay this technology revolution. To the extent it considers any new digital technology, its interest seems to be limited to the adoption of CBDCs (Central Bank Digital Currency) which are known to be programable, and will provide total monetary control of its nation’s citizens. In addition, a CBDC can be an effective tool to counter Bitcoin, which would reduce the banking systems control of the economy.
Congressmen and Senators receive substantial financial support for their reelections from bankers; so, they are not likely to support digital asset or crypto currency legislation that is likely to penalize or make banks irrelevant. CBDCs direct transactions with individuals or business customers would disintermediate banks; therefore, we should not be surprised if CBDCs are likely not approved through Congress. Other countries will surely adopt some form of CBDC which will require a bridge currency for international trade settlement.
Stablecoins are backed by a national currency, therefore, they also support government debt issuance. Stablecoins are competitors to CBDCs and could become an important part of our future currency. Of course, stablecoins would also be on/off ramps for digital currencies thus fostering asset tokenization and growing digital asset use. Being mindful of the continuing devaluation of fiat currency, stablecoins can be no more stable than the underlying currency itself, and our dollar is anything but stable.
Debt solution and digital bridge currency use supremacy
With a potential implosion of our fiat monetary/financial system, government’s liabilities for our social programs such as Social Security, Medicare, and Medicaid would start to unravel. Thus, the nation itself would require a reboot! This reality would bring forth a new monetary system and very possibly a new political system. We are talking about far more than a recession, or depression – we are talking about the end of Keynesian economics, the end of the dominant global U.S. exclusive reserve currency and U.S. and Great Britain’s global hegemony, with the advent of a new technologically advanced digital and commodity-based monetary system, multipolar political power sharing, a people uprising and multiple country government restructuring and even its possible violent replacement. It seems reasonable that such draconian experiences should be avoided or diminished, if possible.
During the period of debt defaults of the Great Depression nearly a century ago, government confiscated people’s gold money, and in 1934 president Roosevelt required citizens to turn in their gold coins to banks and receive paper money in return, outlawing citizen ownership of gold. The government then raised the price of gold to $35 an ounce (from $20.67), immediately “gaining” this increased value from the public. With these funds confiscated from the citizenry, government was able to restart/reboot its monetary system. It could do so again, this time by decreeing an increase in the value of some asset that might be acceptable to foreign and domestic owners of the nation’s mountainous debt. Prudent adoption of a new monetary standard which eliminates or reduces the U.S. gargantuan debt could save the country from a collapse to simply a country which remains in a slow but peaceful long-term decline.
What is needed is a means to pay down our unpayable debt to a level that makes it credible for it to be repaid and provide confidence that our unfunded liabilities can be somehow at least partially honored. Regardless of the asset used as backing for any repayment, it is clear that this asset today will need electronic representation in order that any new currency can be transacted instantaneously. It will also need to be an asset which cannot be diluted in value through increased government issuance, and is interoperable between countries and platforms.
As the world gets more economically and geopolitically divided, or namely more decentralized, a bridge currency will become increasingly important. Individual country currencies tied together with a bridge currency implies that the next financial system will be in fact much more decentralized, providing less control from any centralized authority. Well over one hundred countries are researching or developing CBDC platforms, and any adoption will bring forth the need for a neutral bridge currency.
At this point people somewhat familiar with the crypto market will point to Bitcoin as a possible solution. But our government cannot confiscate this already global crypto currency, nor does it have the required development relationships with world banks, or bank-use payment programs. In addition, it has scaling, processing speed and expense issues that make it unviable. By contrast, the company Ripple has hundreds of employees globally, who for years have been working with banks and central banks helping them set up modern payment systems or stablecoin and central bank currencies. Its tokenomics are also optimal in terms of speed, scaling, and cost.
Ripple’s balance sheet includes roughly about 50 billion XRP previously issued tokens, while another 50 billion tokens are owned by global banks through options, developers, founders, and the broader market. Of particular note is the fact that of the over twenty thousand platform tokens in existence, XRP is the only token legally recognized not being deemed a security. Therefore, it can function globally, legally, as a bridge currency facilitating trade conducted in diverse currencies, become a unit of account or value, and perhaps this global bridge currency could then be used to purchase and provide final settlement for our globally owed treasury debt.
Considering the size of our national debt and the price of this token, there are not enough tokens to meaningfully pay off this debt. Also, foreign central banks and other owners of treasury securities will not accept the bridge currency XRP for settlement on account that it is not supported or decreed by a government or an international financial organization. Now, if our government were to nationalize or otherwise share control with Ripple such that Treasury, or some other Prudent Regulator can decree an acceptable initial bond/XRP exchange value taken from Ripple’s holdings of XRP, as it did with gold a century ago, substantial debt repayment could become possible.
As Treasury bonds continue to lose significant value from both rising interest rates and dollar devaluation, many treasury security owners might conclude that it is ultimately better to own a noninflationary digital currency that could further rise in value from use adoption as opposed to treasury debt that is guaranteed to lose value from continued inflation. The Bank of International Settlements (BIS) will allow banks to hold 2% of their assets in crypto currencies starting in 2025; this will also expand crypto adoption and will be another incentive to exchange treasury debt for a bridge currency. This bridge currency would also provide liquidity to the market without being exposed to the Triffin dilemma or increasing government debt. Not achieving such a solution would lead ultimately to official debt default.
Our possible future
It is possible to see a future where America’s outstanding Treasury debt is under $10 trillion again, and its dollar is a stable and globally respected currency. Its unfunded liabilities have been reduced and secured, promising fulfilment of established government programs. Because the new asset-backed dollar system eliminates price inflation, people can afford every day products. Because the national debt is significantly lower, its interest costs have been commensurately reduced, providing a sense of financial security to all citizens. Since the dollar has been stabilized, international trade once again is robust. Countries are competing in spheres of trade, technical development, and education, rather than military adventurism. No country infringes on another’s sovereignty or dictates what its policies should be. Military conflicts are reduced or nonexistent, because countries are competing in manufacturing, industrial development, improvement in health, longevity, and quality of life.
The new financial system has reduced the domestic and international transaction friction and cost of doing business which is now more regional and decentralized. Political outcomes are free from voter fraud as blockchain identity platforms have eliminated rigged elections. The work force is finally adjusted to working three to four days a week, rather than some people working forty or more hours per week while a large portion of the work force in unemployed. People working just three days a week provides enough income to afford the things needed for living, allowing time for humanity to flower in a multitude of new and diverse ways.
We are unwitting participants in the current world “war” which fortunately is being fought more with financial, monetary, and crypto technology weapons than with destructive nuclear bombs. If this technology war subdues the neocons of the world, we can save humanity and our world from destruction. Humanity’s future is potentially bright, but for the next several years we must endure the current and soon to be acknowledged depression, as well as the monetary and political global governance transition. It is as if an economic hurricane is upon us, but afterwards the skies will be sunny and clear.
Raymond Matison
Mr. Matison was an Institutional Investor magazine top ten financial analyst of the insurance industry, founded Kidder Peabody’s investment banking activities in the insurance industry, and was a Director, Investment Banking in Merrill Lynch Capital Markets. He can be e-mailed at rmatison@msn.com
Copyright © 2023 Raymond Matison - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.
