Rising Roll-Over Risks

Jam Today, Crisis Tomorrow? Understanding Gold, Bitcoin and Financial Crises

The bane of modern economies is that, often incentivized by low interest rates and otherwise driven up by mandatory government spending, debt continues to rapidly expand. Since year 2000, US public debt has risen by a whopping 9.6 times, and over the same period, the price of gold has risen by a slightly faster 9.65 times. Bitcoin, a similar monetary inflation hedge, has risen at an even faster clip. The common factor driving these (and other) asset prices is expanding Global Liquidity.

We explain below the paradox of modern economies, namely that debt provides the collateral against which most new liquidity is created, and, in turn, debt itself needs liquidity for the roll-overs necessary to maintain its own integrity. In other words, debt and liquidity should move closely together for financial stability reasons.