THE CAPITAL WAR: WHO WILL WIN?

 

Everyone's  talking about the Trade War.  The fact is nobody wins a trade war.  Some lose more than others.  It's fun to talk about who loses most.  But that's not what will change the economic world.

What will change the economic world is the Capital War.

What is the capital war?

It is the other side of the coin of the trade war.

When you buy a good or a service you are also SELLING A DOLLAR.

The US has been selling its dollars all over the world for the last 50 years.  And we have been running huge CAPITAL SURPLUSES.

This is the heart of American Excetionalism.  

Why?

Because we have the reserve currency.  That means when all the other countries buy our dollars they use them to turn around and BUY OUR DEBT,   Because our debt is a Tier 1 Capital Reserve Asset.  

This underwrites our huge debt.  It also provides liquidity to the huge Eurodollar debt market.  And it keeps our rates low so we can refinance our debt cheaply.  AND When we sell our dollars we get cheap well made goods it return, which keeps our inflation rate low.

And most important: it provides tremendous liquidity for all dollar denominated Debt Markets.  

Without this liquidity the potential for a global debt crisis becomes dangerously high.

If liquidity dries up in the debt markets the only response is a massive infusion of printed money by the global central banks.  This will be highly inflationary.  Great for Gold.  Great for the super wealthy who own most of the hard asset market.  Not so good for everything else.

The US Capital Surplus (the other side of the Trade deficit) has been the single greatest Deal in recent economic history, bringing unpredcedented prosperity through unprcedented global liquidty.  That is why evey administration for the last 50 years have engaged in it.

Unitl now.

Now are undoing this deal.  

Why?

To bring back manufacturing which is only 20 pecent of our economy and will go to automated factories over the course of the next 20 years so few  jobs will be  created.

Doen't seem like a good trade.

Especially since now GOLD is also a TIER 1 reserve asset.

So now we are agressively demanding other countries not buy our dollars and thus not buy our debt.

And they are obliging.   

So what do they do with their excess capital now?

Well, they buy the only other Tier 1 reserve asset: GOLD.