The Kings last stand
The paradox of the dollar, the bubble in artificial intelligence, and the tightening noose of the bond market are not separate stories but facets of a single process: the exhausted endgame of the post‑crisis monetary regime. In the language of central bankers, the polite term for this is “normalization of monetary policy,” but behind closed doors they admit there is nothing normal about what lies ahead. When senior officials of major central banks gather in Basel and, instead of projecting calm technocratic confidence, speak in near‑panic about capital flight from Treasuries, stress in repo, the vulnerability of pension funds and the need to prepare capital controls, it becomes obvious that the system is no longer being managed; it is being nursed through its final phase in the hope that the inevitable rupture will be postponed for just a little longer. The irony is that the very forces that are supposed to weaken the dollar in the long term are setting up the conditions for a violent and destructive surge in the short term, and that the glamour of “AI” is masking not a new economic miracle, but a classic late‑cycle capital misallocation that threatens to blow a hole in the shadow banking system.
The first crucial element of this picture is what might be called the flight from Treasuries disguised as diversification. At the Basel gathering described by Varoufakis, senior officers from the Federal Reserve, the ECB, the Bank of Japan and others spoke bluntly about the fact that demand for US government bonds from foreign central banks is falling sharply. Official statistics published by the US Treasury paint a relatively benign picture of foreign holdings, but, as they admitted, this data is “crooked” in a very specific way: sales are routed through private banks and offshore centres, and executed via custodians, so that the true pace and size of the exodus is obscured. Japanese officials made it explicit that if markets understood how quickly they were unloading Treasuries, there would be a “collapse in Treasuries with a small minus sign” – in other words, a disorderly crash in prices. European central banks are doing the same, exiting dollar assets, including Treasuries, moving into gold, silver, even Bitcoin in some cases (an oxymoron at all levels). Large players are reallocating into precious metals and away from US paper, not as a gesture of ideology, but as a sober response to a system that now requires rolling two to three trillion dollars of debt every 60–90 days just to stay afloat.
