14th June 2024 > > Saudi Arabia.

tl;dr

Saudi Arabia highlights the urgent need to move financial assets on-chain.

Market Snap

Market Wrap

Gensler has put a timeframe of weeks to months for approval of individual spot ETH ETFs in form of S-1 documents. To make the point, he also stated it is a matter of “when”, not “if”.

Curious Cryptos’ Commentary – Saudi Arabia

It has been reported that the 50-year agreement between the US and Saudi Arabia to sell Saudi oil priced in dollars, and only dollars, was not renewed on 9th June.

Many people ascribe dollar hegemony at least in part to this arrangement. Its collapse will cheer not only brutal tyrants such as Putin, Xi, and the ridiculous Kim Yong Un, but also those who sometimes display a visceral hatred of all things American, for reasons that entirely escape me. Be careful what you wish for might be a handy thought to keep in mind, if this recent development presages the beginning of a new world order.

Aside from the geopolitical implications of a world less secure, there are two direct impacts on our favoured topic of cryptos. Let’s dive in!

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The US debt burden of $34 TRILLION can never be repaid, and that is merely the on-balance sheet items. Off-balance items total many multiples of that amount. This burden is funded by the sale of US government debt to local and international investors, sales that are predicated on the status of the greenback as the world’s reserve currency. Any threat to that status will diminish foreign appetite for US debt.

Between them, Japan and China hold $2 TRILLION of US government bonds. You won’t be surprised to hear that the biggest holder is the US government itself with $6 TRILLION held by funds for social welfare entitlements, contrary to the popular view that the US leaves its poor with no safety net at all. Another $5 TRILLION or so is held by the Fed as a result of QE. Nearly one-third of the US debt pile has been funded by the US government itself, aka money printing, a habit inculcated by Congress during the Civil War. If that isn’t fantasy economics, please tell me what is.

There is no plan, or even the merest suggestion, that any of the candidates for the Presidential election have any intention of reining in government spending. The debt pile can only ever get bigger. The collapse of the Petrodollar pact simply means that the US government will have to buy even more of its own debt, as the market clearing price for 10-year yields in any other scenario would lead to the greatest recession ever experienced across the entire world.

I am, of course, referring to the reinstatement of the second least progressive policy (after lockdown) ever enacted by a peacetime government, namely quantitative easing.

Forget about the shenanigans this week about whether the markets are right that the US will see two quarter-point cuts in the overnight rate in 2024, or whether the Fed will get away with just one. That is not even a side-show of a discussion.

Money-printing will soon be back with a vengeance forcing the price of hard assets – property, stocks, cryptos – higher, much higher, relative to fiat.

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The second impact is so highly predictable, and so utterly depressing.

Saudi Arabia – which takes its rightful place high amongst the pantheon of autocratic nations – is developing an oil-based CBDC in cahoots with Russia and China.

Dear God, this is scary stuff.

CBDCs are the epitome of an illiberal, undemocratic philosophy, which explains why the US, Switzerland, and Slovenia, have outlawed the very concept within their sovereign realm.

Like I say, be careful what you wish for.