[zbyforgotpass]

My brain dump on this: after USD become decoupled with gold it became a kind of measure of total USA production capacity (capital) - that is mostly equities and real estate. The Feds for now has all the levers to make it so - and make the equities and real estate prices go up smoothly. But it is also a reserve currency of the world - and with globalization this task is bigger and bigger and sucks in more and more USD while the US economy is smaller and smaller part of the global economy. That pumps US equities up (but according to the article not real estate) - and this is why the US equities are 61% of world equities while GDP is only 23%.

This can stop in a rapid phase shift once people realize that USD is not such a safe asset any more. Gold bugs have been wrong for 50 years about that and nobody believes this any more - but actually 50 years is not that long for a world wide buffer to fill up. And this time is really different than 1980 because of higher US debt, smaller economy.

The US debt will at some point become too big and Feds will not be able to defend USD (higher rates means more money goes into debt financing - and if the world stops buying that debt it goes into a self reinforcing loop)..

[anm89]

I would slightly disagree. USD as measured by the DXY is as much if not more of a function of international demand for dollars (ie Eurodollar markets). There is massive structural demand built into dollars based on coupon payments in $ denominated international sovereign and lessso corporate debt as well as international commodities markets.

[baxtr]

> This can stop in a rapid phase shift once people realize that USD is not such a safe asset any more.

Why would they think it is not a safe asset and if so what would they do instead with it? Also: Why do you think this shift would be rapid like in a phase shift?

[zbyforgotpass]

The number one scenario - inflation starts, Feds raises rates, debt service costs raise => debt grows even more and at some point people realize that it cannot be paid back without too much inflation.

Reinforcement in raised rates => depression and stock market crash => investors stop using US equities and real estate as value store.

And Feds needs to raise rates - because of negative effective funds rate (https://www.lynalden.com/wp-content/uploads/newsletter-2022-...) - this is also something that people might not perceive for a long time - but then suddenly see it.

[baxtr]

That might be a probable scenario. What's the probability for this in the next 5 years? 10%?

Also, again my question: What would people buy instead?

[ericd]

Property? Gold? Industrial commodities? Mining rights? Used cars? Bitcoin? Farmland? Other hard assets? Arguably that’s already been happening, with the global melt-up in asset values across the board.

[zby]

Now - why rapid - in general because it will be a bank run. People now assume that the dollars they have in the banks (and in notes) can buy them a part of the world economy - when they realize that this part shrunk they'll try to sell dollars and buy something else - adding to the dollar decline.

I don't know - most probably it will still be much slower than bitcoin maximalists imagine (see for example https://noahpinion.substack.com/p/inflation-is-up-but-the-in...). Maybe it will be like going bankrupt: “Gradually, then suddenly.”