Fiscal Dominance: The Fed's Plan to Stop US Bankruptcy

Curious to know what the Fed's plan is to deal with the massive public debt bomb?

Curious to know what the Fed's plan is to deal with its massive public debt bomb? See below. Here are some alarming takeaways:

1. There is a limit to QE: "Fiscal Dominance = money printing to pay for US debts no one else will buy" is limited by strength of economy + interest rates, neither of which central banks or governments can control
2. USG is so broke it cannot afford to issue Treasuries with rates above zero, which means by law the Fed will eventually force private banks to hold government debt at zero interest rates (this can legally be done)
3. Forcing banks to hold Treasuries losing value (already the case) and paying no yield means "a major shock to the profits of the banking system"
4. As a result of no profitability and accumulating massive losses on balance sheets, depositors will receive no interest on their savings accounts (already the case), which will lead to "financial disintermediation," a fancy term for money fleeing banks to find yield outside the banking system
5. Finally, as you can see, this means that the banking system will then lock down to prevent capital flight, and at the same time stop "financial innovations," an ambiguous phrase for cryptocurrency, gold, commodities or other non-bank or non-USD-denominated mechanisms

Some sobering thoughts:

1. Interest rates work in cycles determined by market forces, which means interest rate increases are only just beginning across the world
2. Precedent - during the Great Depression, FDR followed a similar plan: bank holidays and banning private ownership of gold. Such a move today would only catalyze massive depositor withdrawals as demonstrated by SVB (a million dollars per second was withdrawn)
3. Bitcoin in particular looks to gain massively from the coming banking meltdown because it is liquid and held on a digital ledger that cannot be locked up, and can transact
4. CBDCs - All of the above suggests that a CBDC may become the "solution." However, a CBDC cannot resist falling confidence in a broken currency, nor does it wash away the massive losses + counter-party-risk crippling the legacy-banking-system
5. Foreign USD-Denominate Debt - There is about $32T in USD denominated debt, about $7T of which is concentrated in commercial banks and Treasuries. Any attempt to lock down the banking system will create international backlash and only accelerate a fire sale out of dollars. (See backlash from Russian sanctions for evidence of the same)

In short, there is nothing new under the sun; QE has been done before and predictably fails each time. Fiscal dominance (QEI) has structural limits and dangerous unintended consequences. Finally, the outlines of a credit freeze above paves the way for Bitcoin (+liquid currencies) that will dis-intermediate the banking system.

Stay liquid and begin the divest accordingly.