- Bitcoin (BTC) or gold might see a significant surge if chosen as reserve assets by the US.
- The US suffers from a “resource curse” due to its overproduction of the dollar, according to macro investor Luke Gromen.
- Gromen highlights the resulting economic financialization and its negative impacts on national security and wealth distribution.
This article delves into the potential implications of the US adopting Bitcoin or gold as reserve assets amidst its “resource curse.”
The “Resource Curse” and Its Consequences
Luke Gromen, a seasoned macro investor, recently discussed the concept of a “resource curse” in a YouTube video. The term refers to the phenomenon where a country’s reliance on a single abundant resource—in this case, the dollar—leads to economic imbalances. Gromen asserts that the US economy has become overly financialized due to its monopolization of dollar production. While this initially appears beneficial, it results in a deindustrialized economy characterized by high levels of wealth inequality and political instability, posing a significant national security risk.
High Levels of Wealth Inequality and Political Instability
As the US focuses on dollar production, other sectors of its economy shrink. Gromen draws parallels between the US and Saudi Arabia, noting that both countries produce their main commodity in massive quantities. In the short run, this strengthens those industries; however, in the long run, it leads to the financialization of the economy. This shift away from diversified industries contributes to severe wealth inequality and escalating political unrest, challenges that undermine the nation’s stability.
The Case for Bitcoin or Gold as a Reserve Asset
Gromen proposes a radical solution: replacing Treasuries with Bitcoin or gold as the primary reserve assets. He suggests that moving away from Treasuries and adopting a neutral reserve asset that can float against all currencies could correct the economic distortions caused by the “resource curse.” Given the magnitude of the US trade and current account deficits, there would be substantial demand for these assets. Consequently, the prices of gold or Bitcoin would likely experience a significant increase in dollar terms.
Neutral Reserve Assets: Gold or Bitcoin
The adoption of a neutral reserve asset such as gold or Bitcoin would require a considerable amount of these assets to settle the US’s large deficits. This shift would not only stabilize the economy but also elevate the demand, and consequently, the price of these assets. Gromen emphasizes that substantial increases in the price of gold or Bitcoin would be expected in order to accommodate the settlement of these deficits at current prices.
Conclusion
In summary, Luke Gromen argues that the US’s reliance on dollar production has led to a “resource curse,” causing economic and social issues. Transitioning to gold or Bitcoin as reserve assets could potentially balance the economy and mitigate these issues. While the adoption of these assets would necessitate substantial price increases, it could also pave the way for a more stable and diversified economic future.
