How long can this continue before central banks do run into the limits of their capacity to explode as you say the balance sheet, print money?
“The limiting factor has to do with the demand for that money and debt. In other words, what debt is. A Bond. A promise to receive a lot of currency and so when it gives no good return or a bad return and there’s a printing of a lot of currency. Clearly, it is not desirable compare to other things for private investors. However, central banks can buy it too. The limit has to do with the limit of demand. That limit of demand has to do central bank purchases. They could buy it, hence no problem.”
“I think it will happen. It looks like a currency defense. What I mean by currency defense is if money leaves that asset. If those who are holding bonds, don’t want to hold the bonds, because they have lousy returns and the printing a lot of money. They want to go something else. That starts to accelerate. As money leaves, this puts the central bank in the position to buy more bonds to fill that gap or it lets interest rates rise. They can’t let interest rates rise. There is too much debt. Interest rates rising, asset prices all go down. It’s too vulnerable. Like all currency defense, they have to accommodate that. The act of accommodating is a big problem. Should that happen, that would be terrible for the United States. That’s right. The United States dollar is a privilege. We are certainly pushing the limits of that.”
〰️ Ray Dalio partial answer on July 2nd, 2020
🔎Ray Dalio believes foreign counties that hold 7T or 26% of the debt in America will start selling their United States bonds. The Federal Reserve will be forced to create more money out of thin air and buy bonds at low interest (at a premium price) instead of allowing interest rates to rise, or else asset prices will significantly crash.
The foreign countries with the dollar will buy another asset, such as gold, new bonds (currency), real estate, or stocks, to preserve wealth. In which inflation will occur in the asset that foreign countries decide to pick. The dollar will lose its reserve status with money, leaving the United States and cause a major currency crisis.
Depending on how much money leaves the United States, it could be an inflationary crisis instead of a deflationary crisis when it occurs. We are in a deflationary crisis now. In my opinion, foreign counties will most likely buy gold or a new bond (currency) as a storage of wealth.