The Great Reset
The term “The Great Reset” has been bandied about —to mean different things — for over a decade now. This article ignores the World Economic Forum’s alleged intent to control the world under that banner. Instead, it attempts to explain the necessity of rebooting a global financial system collapsing from the weight of progressively reckless money printing by central banks over decades. (The central bank in the U.S. is the Federal Reserve Bank, — which is not Federal, has no reserve, and is not a bank.)
The simple version of the story goes like this: In the face of declining demographics and productivity after the economic malaise of the 70s, Reagan started printing money (creating debt) to grow out of a severe 1982 recession. “Reaganomics” worked for awhile, but the efficacy of money printing (i.e. the incremental economic growth spurred by an incremental dollar printed) consecutively declined. By the 2000s, printed money no longer added to the physical economy but instead, drove up asset prices and created asset bubbles in a highly leveraged global financial system. But rather than letting asset bubbles burst naturally, central banks protected their favored financial institutions by further inflating the bubbles, making them bigger. With high leverage, bigger bubbles mean a bigger inverted pyramid (see later discussion) of global financial institutions’ capital structure. We have now reached the point of this inverted pyramid toppling over. Thus, a reset is necessary.
But the story is more complicated than that. Since the lifeblood (major currency) flowing through the global financial system is the US dollar, reset of the system is also reset of the currency. The article attempts to recap the past, present, and future of both the system and the currency.
In 1944 — a full year before WW2 ended with German and Japanese surrender— the Bretton Woods monetary system was hatched in Bretton Woods, New Hampshire. Simply put, this system established the US dollar as the lone currency redeemable for gold. All other Western currencies would first have to be converted to US dollars before redeeming for gold. The global reserve currency “baton” was thus de-facto passed from the British Pound Sterling to the US Dollar.
Fast forward to 1971. Financing the Vietnam war in the 60s seriously debased the US dollar, and foreign countries were clamoring to redeem their US dollar holdings for gold. In response, Nixon “closed the gold window”. In plain talk, Nixon was saying to the world: “You don't need no stinkin’ gold, just trust us”. To shore up that trust, Nixon hatched the Petrodollar System with the Saudis two years later, in 1973. The Saudis — the biggest exporter of the single most important commodity to the rest of the world — agreed to only accept US dollars for its sale of oil. In return, the US military would protect the Saudis from any and all enemies (particularly Iran, its arch enemy). Just like that, the US dollar became “backed by oil”, the US dollar hegemony was thus born and with it, the Eurodollar system. (“Eurodollar” was so named because the system was conceived primarily with post-WW2 Europe in mind. But today, it refers to all US dollars circulating outside of the U.S.)
Eurodollars (in this case also Petrodollars) from the sale of oil to a re-industrializing post-WW2 world piled up quickly for the Saudis, and they had to be “parked” somewhere. The somewhere was U.S. Treasury bonds. What could be safer than earning interest with excess money parked with the most powerful nation post-WW2? The flip side was the US federal government being able to spend money on its military, social welfare and other programs in excess of its tax receipts. By this scheme of recycling oil money through U.S. Treasury bonds, all nations in the world have been indirectly financing U.S. deficit spending to maintain its high standard of living.
Meanwhile, “closing the gold window” meant untethering the US dollar to gold (reserve), and opening the door for printing as many U.S. dollars as the U.S. wished. This exorbitant privilege was not exploited until 1982 when Reagan de-industrialized (remember union busting and offshoring under Reagan?) and financialized. In simple talk, the U.S. stopped being a producing nation and became a consuming nation under Reagan. GDP should have been relabeled as GDS (Gross Domestic Spending) at that point. (Sidebar: If GDI < GDS, then you have recession, forget ISM as an indicator). Worse, the consumption was funded by an exploding credit industry (i.e. “buy now, pay later” culture) in the Reagan 80s. The federal government also ratcheted up its deficit spending by issuing a lot of Treasury bonds. From the Reagan years on, U.S. economic “growth” was in fact debt growth, — because in a fiat monetary system, money equals debt (since money is printed for the purpose of funding US Treasuries — loans which must be repaid in the future).
Predictably, the moment of reckoning from an orgy of not only spending money printed out of thin air like drunken sailors but mal-investing and speculating in paper financial “products” created by ever more sophisticated financial engineering (remember “greed is good”?) first came in 2000 (remember Enron, WorldCom, HealthSouth et al?). But instead of dealing honestly with the reckoning, the Fed just printed more money out of thin air to paper over the crisis, culminating in another moment of reckoning in 2008 (the Global Financial — or Credit — Crisis, featuring Lehman Brothers and AIG). Again, the Fed just printed more money out of thin air to paper over that crisis. By 2020, the U.S. was already running wartime debt level in peacetime:
Then came COVID in 2020. What happened then and in the ensuing years was amply documented in my other article Macro view on 2024 to 2025. Suffice it to say “the problem” got even worse. How much worse? A picture is worth 1,000 words:
What is “the problem”? The value (purchasing power) of every existing US dollar diminishes with an additional one printed out of thin air. This currency debasement (or monetary inflation) wouldn't have been so bad if economic growth accompanied money growth (as in the case of the early Reagan years). But the fact is, ever since Reagan opened the money creation flood gate, money velocity (a measure of economic activity from money circulation) steadily declined (see chart below) even as money supply steadily grew. This means money created is not making its way into the physical economy (creating true “wealth”, jobs, etc.) but instead, fomented asset bubbles (and wealth disparity). Put another way, the efficacy of money creation (incremental GDP growth created by an incremental dollar printing) has been on a steady decline. It now takes $2.50 in new debt to generate $1 of GDP growth. That’s like borrowing $2.50 to generate $1 of income.
Meanwhile, debt and inflation from unceasing money creation have reached untenable levels (unbearable interest payments alongside higher costs for everything, never mind debt that can never be repaid and gets increasingly hard to refinance). When this happened in ancient times, ruling monarchs would declare debt jubilee to clean the slate and reset the system. Unfortunately, this can only be decreed and not democratically agreed upon. Those who live up to their financial responsibilities (e.g. people who pay off their student debt) will never go for “free lunch for the deadbeats”. So some other form of reset must be concocted.
Since traders and capitalists in a highly globalized world all hold Eurodollars under the US dollar hegemony, their first order of business is to seek an alternative to a constantly debased US dollar. Hence, there has been a lot of talk about the possibility of a BRICS currency, or the IMF SDR, or even the Euro being that alternative.
Alas, the US dollar hegemony is not that easily replaceable. The U.S. has the deepest and most liquid sovereign bond market (as a holding tank for the “staked currency”), an open capital account (i.e. no control of capital inflow or outflow), the most sophisticated financial system, and rule-of-law to protect asset ownership. China has none of these features. The other BRICS countries lack most of these features. The EU lacks the first. Consequently, most currency swaps still go through the US dollar as the most efficient intermediary step. The following chart shows, in the 21 years from 2001 to 2022, the US dollar share of total daily turnover of of global currencies merely dropped from 90% to 88%. Of course, it is a remarkable feat for the Chinese Yuan to have risen from no position at all in 2001 to pole position #5 in 2022. But this is mostly at the expense of other currencies and not the US dollar.
More recently (from 2019 to 2023) and on trade flow (i.e. excluding capital flow) alone, the Chinese Yuan has taken over the Euro, — no doubt helped by Chinese purchase of Russian oil in Yuan since the Ukraine war.
As far as capital flow, the “cleanest dirty shirt” in the hamper gets it:
And so the Eurodollar system — one in which private enterprises via their banks swap IOUs denominated in US dollars—go on. But (unlike regional banks,) the Global Systemically Important Banks (GSIBs) — hubs of the Eurodollar system — had long ceased being in the “take deposits in and lend money out” business since Clinton repealed the Galas-Steagall Act. They have become giant casinos whose business — other than getting fees for M&As and such — is to trade countless flavors of derivatives (aka financial weapons of mass destruction), commodities, and currencies. In aggregate, their highly leveraged (thus unstable) capital structure is described by the Exeter Pyramid: A huge amount of paper financial “products” (basically betting contracts) supported by a tiny sliver of the most solid collateral — gold. In the middle are debt obligations (paper claims on real wealth) that are supposed to be pristine collateral (simply on trust that the U.S. government will never default). But where is the real wealth? Well, the earning power of the U.S. (i.e. its GDP) is only a fraction of this pyramid. That should make one ponder just exactly how pristine the collateral is.
Somewhere in the mezzanine levels of this Jenga stack are U.S. Treasury bonds, — a supposedly pristine collateral. Here’s the problem: In the face of the previously discussed currency debasement, Treasury bond buyers demand higher interest. When interest rates go up, existing bond values — that is, the value of collaterals held by banks — go down. (Interest rates can also go up in response to rising inflation from geopolitically induced supply shocks.) This creates a paper loss on the books that can quickly turn into a liquidity problem for banks. If the liquidity problem forces the banks to sell these collaterals, then unrealized loss becomes realized loss and the liquidity problem quickly becomes a solvency problem, — as in the cases of Silicon Valley bank, Signature Bank and First Republic bank in March of 2023. This prospect is exacerbated by the aberrant volatility of the Treasury bond market (discussed here), due to uncertainty about future inflation and dislocation of liquidity. The deep and liquid bond market that is the foundation of the global financial system is now wobbly.
GSIB (aka “too big to fail”) banks are so labeled for a reason. Their insolvencies can trigger a domino of many more bank failures around the world and threaten the Eurodollar system itself because of inextricable inter-banking swaps, loans, and other transactions. This already happened once before in the Global Financial Crisis (GFC) in 2008. In the 15 year since, the wool pulled over everyone's eyes by the likes of Bernanke, Geithner and Paulsen with their mumbo jumbo bailout programs has been well studied and documented. In plain talk, they convinced Congress to use future taxpayers money to bail out malfeasant banks. The GFC bailout was so enormous in scale and egregious in nature that it started a cryptocurrency movement with intent to replace what is now understood to be a banking cabal corrupt to the core. Will Powell, Williams, and Yellen be able to pull off the exact same scheme again this go-around? Highly unlikely, and they know it. Thus, Powell’s dovish pivot in Sep 2023 of pre-announcing rate cuts in 2024 may well be to preempt (or cushion) further bank failures from duration risk in the mezzanine layers of their capital structure.
Meanwhile, in the physical economy, the Eurodollar footprint is (rapidly) shrinking because the Global South (aka BRICS+ — a China-led alliance to counter the West or G7) is rapidly gaining members trading with each other in currencies other than the US dollar. Alarmingly, two recent members are the Saudis and Iran — the number one and two oil producers respectively. By corralling two arch enemies under its own tent, China is obviating the Saudis’ need for military protection against Iran. Added to Russia — a core member of BRICS+ and a major oil producer itself — the Global South will supplant the U.S. in controlling global oil prices. Almost certainly, capital flow (bilateral investments and loans) among BRICS+ members will increasingly take the form of currencies other than the US dollar, hastening demise of the US dollar hegemony. As late as 2000 (long after “Chinese Rising”), 70% of global central bank currency reserves were held in US dollars. Today, that figure is 59%. The rate of change is alarming (CNY=Chinese New Yuan”):
The post-Pax Americana world can be viewed as a bipolar one (between the West and the Global South) OR a multipolar one (whereby any number of nations can join or leave either bloc at will). Either way, a new (digital) currency is needed for trading between the two blocs (since some members of the Global South are locked out of the Eurodollar system). Implemented with DeFi (see later description), this ecosystem will obviate the need to develop a deep and liquid sovereign bond market, open capital account, sophisticated financial system, etc. None of the legacy barriers of entry for a competing currency against the Eurodollar system matters anymore. There is no need to replace the US dollar system, — just lessen its importance. The “peace dividend” will decline with hegemony (a case of “be careful what you wish for”), resulting in de-globalization and a less efficient and stable world:
Granted, the Eurodollar system will still remain after the launch of this competing currency system. But its footprint will be smaller. America won’t be able to use the power of its currency to control commodities prices (notice for decades gas prices have been significantly cheaper in the U.S. than elsewhere in the world), which will prove inflationary for the U.S. To boot, U.S. Treasuries will have to pay higher interest rates to prevent the US dollars from significant decline against other currencies.
With elevated inflation and interest rates persisting for years to come (further discussed here), fiscal deficit spending will become increasingly difficult to finance, requiring domestic financial institutions and retirement accounts to hold more government debt masquerading as “pristine collateral”. This Japanese style “financial repression” (there are those who believe our vassal state has been used as a guinea pig for what ourselves ultimately will have to do) creates a zombie economy whereby the government keeps borrowing to ineffectively stimulate targeted industries. Ultimately, the government will wind up controlling and owning domestic banks and financial institutions in a command-and-control style economy, — just like in Japan. What is already crony capitalism now (free market capitalism died in the 80s) will then die.
In order to prevent this fate, the capital structures at GSIB banks must be fortified and kept from collapsing. But instead of accumulating gold (as the Asian central banks are doing) to strengthen the Jenga foundation (to offset the weakening mezzanine layers of government bonds and currencies), western central banks may be coopting the cryptocurrency movement as a way to reset the mezzanine layers (the only bug-a-boo is the high volatility of crypto prices). There is a circulating rumor that the mysterious “Satoshi Nakamoto” who started the whole cryptocurrency movement is none other than the CIA. Theory goes, that in preparation for the ultimate fiat currency reset, the “powers that be” — at behest of the banking cabal — planted the seeds of a cryptocurrency movement to attractive top talents from around the world to work on a “permission-less” digital currency system that would allow individuals and groups to communicate, interact, transact directly with each other in a totally anonymous and secure manner that obviates intermediation by a (corrupt) global banking system. When this system reaches a sufficient level of functionality, infrastructure, and adoption, the banking cabal would step in and coopt it into its own fold and and use it as a reset mechanism — most probably in the form of CBDC (Central Bank Digital Currency) — for its own collapsing fiat currency system. I previously discussed the details here, here, and here.
So what does it mean for the banking cabal to “coopt cryptocurrencies into its own fold”? Well, in order to complete a new currency system, you need to first migrate currency over from the existing system on a wholesale institutional scale (as opposed to just moms and pops buying cryptocurrencies with fiat money). In other words, in order for the ultimate cryptocurrency system to achieve DeFi — Decentralized (actually more dis-intermediated) Finance — you first need an on-and-off ramp to Traditional Finance (TradFi) in the interim. Theory goes, the banking cabal will control the on-and-off ramp, hijack the cryptocurrency movement, and change the course from DeFi to CeFi (Centralized Finance).
Some speculate 2024–2025 to be the timeframe for such a move by the “powers that be” at behest of the banking cabal. A telltale sign of cooption is the 2024 launch of multiple Bitcoin ETFs by Blackrock — top of the TradFi food chain as the world’s largest asset manager with $9.42 trillion of Assets Under Management. On news alone of this monumental institutional adoption, Bitcoin price shot up 152% in 2023 and will surely go up more in 2024. Blackrock has essentially legitimized Bitcoin as “digital gold”, — a currency debasement hedge. Instead of being the kryptonite that will eventually kill TradFi, Bitcoin is just now another of thousands of tradeable commodity within the regulations and channels of TradFi. Any time a commodity is securitized (i.e. “proxied” buy a synthetic paper product such as the case of GLD for gold) price action no longer reflects supply-demand dynamics of the physical world but is subject to manipulation by the artificial, self-serving financial “industry”, — not the least by way of programmed trading by algorithms bearing no resemblance to physical reality. Even the most faithful to the crypto movement will be detracted by the eye-popping price rise of the cryptocurrency, take profit and lose sight of the original mission of the movement. Meanwhile, all the work done on the technologies will be coopted by the banking cabal to launch their own CBDC.
None of this has become factual, yet. But this is the picture that emerges by connecting all the dots. It is important to note that if this all plays out, the new U.S. currency will be backed by cryptocurrenc(ies) while the new BRICS+ currenc(ies) will be backed by gold. How will ordinary citizens in both blocs deal with their personal store-of-value decisions?
So how does launching a new digital currency reset the old fiat currency? The idea is, instead of having multiple accounts at commercial banks, everyone will “bank” directly with the central bank (the Fed). This makes the transmission mechanism of the Fed’s monetary policy a lot faster and more direct. For example, the Fed may impose negative interest rates (ostensibly to stimulating economic growth during periods of economic downturn) and stealthily siphon money from you at the speed of light. On top of that, the central bank will know everything about every transaction by every individual, big or small, in real time, opening the door for Chinese-style control. Autocracies big and small readily recognize CBDC as an ideal instrument of enslavement and can’t wait to adopt it. But other countries like Nigeria are pushing back.
How the Fed (owned by the banking cabal) will mask, spin, and sell the ultimate form of currency reset remains to be seen. But some kind of reset is inevitable, and coming to your neighborhood theater soon. Lagarde already announced the EU plan in Oct 2023. I wouldn’t be at all surprised if Putin and Xi announce something even more concrete in the BRICS 2024 summer summit. You can bet your bottom dollar something is cooking at the Eccles Building. Alas, no monetary hegemony lasts forever (I even wrote about the French Livre here) and with technology induced time compression, the reign seems shorter for recent regimes:
Transition from the Eurodollar regime to a (U.S. government backed) cryptocurrency regime — just like Nixon's closing of the gold window — can actually be thought of as a “stealth debt jubilee”. Will the world once again “just trust us”? Maybe, given TINA (There Is No Alternative) since the best alternative seems to be falling off the track at this critical juncture.
Circling back to my opening paragraph, confiscation of all private properties by 2030 (under the slogan “you’ll own nothing and be happy”) has been the assumed form of the World Economic Forum’s “Great Reset”. In 2023, David Webb published “The Great Taking”, a book explaining the mechanics of how this confiscation will happen. Here is a summary of that book. Apparently, the financial elite has been quietly changing laws and regulations to prepare for the ultimate confiscation of ordinary people’s assets in custody with the giant casinos (aka GSIB financial institutions). In other words, ordinary people’s money with these institutions will become the latter’s added collateral to shore up their own toppling capital structure (the inverted pyramid previously discussed). If you think this is too far fetched, it is already happening in China. And you were warned by South Park a decade ago.
None of this is new. Mayer Amschel Rothschild, founder of the Rothschild banking dynasty, openly bragged “Give me control of a nation’s money supply, and I care not who makes its laws.” This consequence of banks controlling the issuance of currency was warned by a founding father:
and POTUS and Presidential candidate alike:
And right before the current Federal Reserve Bank was created in 1913, this alarm was sounded:
What “leading indicator” should you look for to know the financial elite is finally ready for “the taking”? They will first take away your guns.
