'Sovereign debt is eating the world.'

'Everyone knew at the time that printing on this scale would cause inflation, perhaps with a delay of 12 to 18 months. But it didn't. Why? The banks held on to the free trillions to pay for a trillion-dollar share of their balance sheets. Coupled with the free gift, China's industrial miracle, is the declining value of consumer goods. Central banks have concluded that the impossible has now become possible. In parallel, another useful myth created by Japan was shattered: that national debt was deadly. Again, everyone knew that national debt above 100% or 125% of GDP would lead to the end of the world. But Japan crossed that line 25 years ago. And nothing happened. There are its own special reasons for Japan, mainly the proportion of debt,''central banks: they are effectively refusing to finance government deficits. The Federal Reserve has already shrunk its balance sheet by more than a trillion dollars by selling federal debt to curb inflation. This effectively puts central banks out of business because they can't finance government deficits if they are simultaneously trying to pump money out of the economy. As a result, debt-to-GDP ratios above 100% almost everywhere in the world - almost 150% for the U.S. - face paralyzed central bankers. That has investors fearing that perhaps major nations may not be able to handle the debt and possibly default.

The final element of the crisis is the contraction of the economy. Since the main way,''the way central banks fight inflation involves restraining the private economy by raising interest rates. This is exactly how central banks have responded to inflation following the data of the last two years, raising rates a total of 276 times around the world. This is now causing virtually the entire global economy to slip into recession. Historically, recession worsens both deficits and debt - by several trillion dollars in the case of the US. So, it's the sum of the trio of inflation, sovereign debt, and recession. An example of this trio is the 2009 European sovereign debt crisis. It started when investors lost confidence in Greece, which was playing with default. Investors' fear then spread to Portugal,''Ireland, Spain and Cyprus. They were all eventually rescued by the European Central Bank promising to buy unlimited bonds. In effect, debt was turned into money. The problem is that with inflation at 6-7%, central banks cannot turn debt into money for fear of losing their independence.

There's a strange paradox: no one wants to deal with the dollar, but there's nothing wrong with it. Currency expert Stephen Zheng published a chart this year showing that the U.S. dollar's share of reserves fell from 73% in 2001 to 55% in 2021, and then plummeted 8 points. This happened because the US withdrew dollars held by the Russian Central Bank, which warned all countries that US dollars were very dangerous to hold.''A lot of them have moved to other currencies or real estate in the form of gold. The paradox is that even as countries move away from the dollar, it still holds its ground, and in fact it has been rising over the last year. Why? Because before the dollar dies, other, weaker currencies are getting in its path. In fact, there are more and more major market currencies, and the dollar absorbs weaker currencies every step of the way until the final Ragnarok comes.

To this point, this is all that could happen. But what are the odds?