Ainigma

How Does a Reserve Currency Collapse? Behind every Ponzi/fiat currency, you’ll find debt. The modern Western economic model is based on debt production—no new loans, no GDP growth. For a government/economy to function, the Treasury must issue government bonds, which must then be bought by investors in the primary and subsequently secondary markets. You can easily recognize the collapse of a reserve currency by looking at who the buyers are: 1. Bonds are bought by all market participants because they trust the issuer, the interest rate is attractive, the market is liquid, and government bonds hold the highest credit rating. 2. Bonds are bought by friendly entities in a “you buy my bonds, I buy your oil” system. 3. Bonds are bought by entities in a submissive position—central banks, commercial banks, pension funds, and other institutions in foreign countries where legislation permits or mandates such purchases. (It is the “duty” of colonies to buy the hegemon’s debt!) If the government doesn’t wake up and continues spending like a drunken sailor, the process escalates: 4. The central bank of the issuer steps in as the “buyer of last resort” (debt monetization, aka money printing). 5. The cost of servicing the national debt rises sharply, requiring the issuance of new, more expensive bonds to cover previous ones. The issuer falls into a debt trap. 6. At this stage, the fate of the currency is sealed, and debt holders begin to sell off their holdings. From here, the collapse accelerates: • Bond prices fall → Interest rates rise → Government spends even more → Debt monetization intensifies → Trust in the issuer erodes → Sell-offs continue → More bonds are issued → Bond prices fall further… This loop has always ended the same way throughout history. Economics and mathematics are beautiful sciences.  Now, take a guess: at which stage is the US dollar right now?

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