EurAmerica has created a banking bubble that will be very difficult to unwind. We allowed the bubble to evolve because we have never relented from our grander perception of the European civilization in the community of civilizations. As such, after mercantilism resulted in the slave trade, industrialization ended in colonialism, and Bretton Woods preceded post-colonial national indenturement via the IMF and the World Bank, it seems EurAmerica boxed ourselves into an aggrandized monetary corner.
America singularly fell into the superiority trap when we assumed that our obsessive post war desire for a military to overwhelm all other militaries was desired of us by the rest of the world as well. At the end of WWII, America found herself having to fund our re-establishment of our international commerce by rebuilding the rest of the world including vanquished and allies alike. As we built our communist protectorate, it seemed infeasible that we could collect payments from other nations to both pay for our policing powers and for the Marshall plan, for earlier post war reparations beget Weimar Germany and WWII.
Yet America had most of the gold and the world had not yet let go of the concept of gold backed currency so all other nations needed gold backed dollars post war. It seemed only natural for a superior minded America then to charge other nations a fee through a debasement of our dollar. As a logical next step, when America desired to fund our Great Society and Vietnam, it was easy for our superior government to rationalize borrowing through additional money creation.
This exuberance and arrogance of easy money printing finally gave way to a misguided concept held by America’s central bank that perhaps the world’s first worldwide dollar reserve currency could actually be inflated to curb the $50 trillion dollar credit default swap bubble that dwarfed the worlds $15 trillion dollars of trading currency by comparison. We have now seen that this superior thinking was just folly.
America lost sight that money is just a place holder for people’s commitment to create real value in the future to offset the creation of money today. By our superior actions, we now risk causing even the first world reserve currency to hyperinflate. If by chance, the world is able to sustain stability of this current superior monetary system a bit longer even with a weakened Yen, a weakened Euro, and a weakened Dollar, the Yuan will likely emerge to complement the global mix.
Asia has already developed into a center of commerce within itself and the Yuan will easily surpass the dollar there. China has been wildly accumulating gold as a precursor to that eventuality. She recognizes that her strategy of keeping the value of the Yuan low to ease interest rates in America has run its course and that at a point, a strengthened Yuan will benefit hegemonic relationships more than continued reliance on exports to an overly debt ridden America. Therefore, the Yuan may soon take its position center stage in a sharing of reserve currency status with the other global currencies.
However, if something like a Greece default thrusts EurAmerica and thus the rest of the World into the Greatest Depression, our credit will be ruined for the foreseeable future. This mountain of credit default swaps will collapse, the current structure of banking and insurance industries will be awash. An accounting of which individual financial companies will continue to remain solvent will take time. Hard assets in America will quickly revert to true or even severely depressed values. A new American currency may evolve.
Asia will return to strength much more quickly than EurAmerica, and we may emerge in a more hegemonic subservience to Asia. A return to bilateral trading contracts backed by gold stores may be inevitable. The exponential growth of debt derived money creation will be reset to a slower slope of escalation. Nations will once again separate money and credit formation functions from investment banking, perhaps creating a non-profit incentive for central and commercial banks to curb the escalation of debt required to feed interest payments.
China’s concept of money creation will endear itself to the world with the idea that money is created by the commitments of emerging countries, not the supply of hegemonic capital. The promise of the emerging nation creates money, and that promise is solidified by the emerging nation’s ability to create laws, infrastructure, and education to support it. Without causing nations to be indentured solely to the needs of the empire, China may emerge from the Greatest Depression spawning a new monetary system that grows healthier worldwide communities in which money is truly a unit of commitment to future value created and not a political tool to indenture the world to a perceived EurAmerican superiority.