The World Bank announcement this week that the US budget fight is sinking the global economy. If the United States does not continue to create deficits, it would sink the world economy and here’s how.
Since the US Dollar is the world’s reserve currency and since it is a debt based, fiat currency that must create more debt money every year in excess of the debt and interest or it will collapse in the mother of all margin calls.
This reality was first quantified by famed economist Robert Triffin. He stated in Triffin’s Dilemma , that if a country was to be the world’s reserve currency, it must supply the world with extra currency through a trade deficit. He noted that at some point the debts would become so large that at some point those debts would be some onerous that they would need to be defaulted upon. That default would bring down the world economy that was built up around that economic paradigm.
One solution that was prospered would to have an even larger global currency that could be used to supplant the dollar. That would limit nations the ability their sovereignty and ability to create debts. We have already seen how the Euro has done in a very short time frame. Also rising non-Anglo American powers with reserves and trade surpluses wanted more control than the current economic powers are willing to concede.
This has lead to a secret race for gold where central banks around the world see that the day of the dollar is coming to an end and that there will be no world reserve currency to supplant the dollar, so gold is the only answer left.
The problem with this is that this gold is believed to have multiple claims on the physical ounces in storage. Now there is a scramble for the amount of real gold in storage. Nations like Venezuela started repatriating their gold from storage in other nations. Now nations like Germany, Austria and Mexico are questioning where their gold is. Even individuals realize that the end game is coming near and the physical demand, lead times and premiums are going up. At some point the dollar game will end and those nations and individuals with their physical metals in their possession, will win the largest game of musical chairs the world has ever seen.