Can A Failed State Issue A Reserve Currency? (And Other ‘Insurrection’ Musings)

Can A Failed State Issue A Reserve Currency? (And Other ‘Insurrection’ Musings)

A modicum of stability was restored Thursday following the melee on Capitol Hill, where legions of Donald Trump's disciples briefly "occupied" Congress Wednesday. It marked a fitting end to a dubious presidency -- a disorganized, motley crew of supporters, indoctrinated by years of tacky, Trump-branded propaganda, wandering the halls of a building adorned with portraits of people they didn't recognize. Just hours later, lawmakers returned to the very same chambers to certify Joe Biden's Electo
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13 thoughts on “Can A Failed State Issue A Reserve Currency? (And Other ‘Insurrection’ Musings)

    1. I wonder to what degree the breach of Capitol security sapped the will of the House reps who’d planned to let the confirmation drag on for hours or days. To that end, POTUS’ gambit backfired horribly.

      Congress’ sharp rebuke of mob rule — we’re convening and getting this done TONIGHT — was an encouraging sign, and yes, I’m sure it helped define the market response overnight and this morning!

  1. Big Business usually finds ways to accommodate itself with fascism/autocracy. Yes, autocrats/fascists can be a bit annoying with their pet peeves and whatnot but they are usually very into the status-quo, which, by definition, is pretty good for Big Business.

    Of course, TWTR and FB would have to fall on their knees and beg for forgiveness and twist their algos to make sure a particular segment of the population is the only one allowed to speak freely but, hey, advertising dollars would still keep rolling in. And, ultimately, as investors, that’s the only thing we care about…

  2. As well, not to be scoffed at any longer, is capital flight by American’s with capital, the fortunate few, out of the US and into other jurisdictions. Out of the US system. As a diversifier. From a risk management perspective. While the option is still available.

    Such an event that could lead many to take this pause is still over the horizon. Our historical trajectory is not going to include a V-bounce return of our institutions. We’ve been warned.

    So, a follow on question. When are our intellectuals and artists going to start being arrested? Will it be tech executives instead? What countries will they flee to when this starts? Seems like Spanish would be a good language to start learning.

    1. I try not to let my mind go there and then I remember some of history’s lessons for those who choose to look away and then I’m looking for something powerful to ease the anxiety.

  3. This is a thought provoking post… ! I immediately wound up in a schematic mode when seeing yesterday’s scenario… I am very certain the financial and political establishment were back to back protecting against a dismayed public who is /was not enamoured with either of these institutions irregardless of status in their respective lives .. Like a tree with a branch having been cut off a protective sap exuded in an attempt to protect and hopefully to heal …. Hopefully..!!? Interesting to watch the cast of characters and their respective actions…

  4. We are focusing on the impact of autocrats on business. Can be good, as in Singapore.

    But aren’t we talking about something else here? Shouldn’t we be looking at how business does when there is a populist regime? The right points to Venezuela as an example of socialism run wild. But isn’t it, at heart, a populist regime?

    Or even some of Trump’s measures on immigration and drug pricing. They were popular but not great for many businesses.

    Populism is not always business-friendly.

    1. Fair point but in the US/via the GOP, it’s going to be right wing populism. It still isn’t going to be a universal good for businesses but, generally, you cannot count on such people for reversing societies’ established hierarchies.

      1. It would be a very brave person who relied on such people for anything. Unpredictability and fickleness are that you can guarantee, and once they trash the rule of law you have no recourse. As Jack Ma has been taught.

  5. Perhaps investors are increasingly realizing that the “risk-free” component of CAPM that underpins the entire immaculate theoretical castle of financial theory, and serves as the pristine collateral for the global financial system, is not so free of risk. The theories haven’t ever survived major instability, let alone a world war. They’ve also already, I would argue, been subordinated by a new regime that is, in substance not name, an implicit-to-explicit nationalization of most developed world economies. That Rubicon was crossed, and it seems there is no going back. That is the lesson of 2020, I believe. And that is why this bubble is different. It will now take sovereign defaults/collapses for it to truly pop. I suspect most of the theorists will hold on to the bitter end to defend their life’s work and twist it to fit the new realities, essentially a form of reductionism and a category error. They need new theories. This is the Karl Popper dynamic at play – and endless cycle of conjecture and refutation.

    The symbolic significance of yesterday cannot be overstated, I think. The images shattered a symbol of authority, and of many, many other things, including the stability of the entire geopolitical world order. Like broken glass, it has been forever altered, and it isn’t possible to just glue it back together without credibly transformative change. If you don’t appreciate the power of images, think of how dramatically the US reshaped the world after 9-11, the ramifications of which continue on an on to this day particularly in our surveilled reality.

    1. On a technical point, the risk free model, even in a collapsing economy, still holds. The bond is a guarantee by the owner of the printing press that you’ll get a bit more printed money after you delay your right to receive services or assets.

      What it can’t capture by construction is the risk that you may no longer want to hold that money. But even then, you could treat the potentially undesired currency as a risky asset and some other unit of value storage as the reference currency with zero risk free return.

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