Transforming Sovereign Debt into Economic Growth

Economics, Premium POM

From the Industrial Revolution to the Intelligence Revolution

By JC Collins

There are numerous studies which support the correlation between the onset of the modern banking system and the origins of the Industrial Revolution.  Sovereign debt expanded under the British Empire at a faster rate than any other nation or region after the establishment of the Bank of England.  This increasing debt accelerated the Industrial Revolution and gave birth to the modern world in which we live today.  Further reading on this can be found here.

We have reviewed the alignment of central banking and the Industrial Revolution in previous articles, but the questions regarding the massive levels of debt which now exist in the world, and what to do about it, has been mostly discussed around sovereign debt restructuring mechanisms and write-downs.

The SDRM (Sovereign Debt Restructuring Mechanism) of the International Monetary Fund is being redesigned to handle the large volumes of sovereign debt which will need to be repackaged and dealt with after the next financial crisis emerges.

The SDRM is one mechanism which can be used to address the large amount of debt in the world.  The SDR (Special Drawing Right) basket of currencies, which as of next week will include the Chinese renminbi, will play a fundamental role in this process.  The SDRM will take sovereign debt denominated in each nation’s domestic currency and repackage it as SDR denominated bonds.  These SDR bonds will also be partially asset backed, depending on the level of debt restructuring which has to take place for each nation.

It was important that the SDR was expanded before the SDRM process was initiated.  It is SDR liquidity, or more precisely the potential market for SDR liquidity, which will allow for the transformation of the existing sovereign debt into economic growth.

As an example, some Chinese banks are beginning to repackage bad debt into new asset backed securities.  This process will mirror the larger sovereign debt restructuring which will take place through the alignments of the IMF and the SDRM, as well as the Bank for International Settlements and other international institutions.

The transformation of this debt into new repackaged liquidity will accelerate the next human revolution of material advancement.  Much like the onset of central bank practices and sovereign debt spurred the Industrial Revolution, the new multilateral monetary framework and supra-sovereign banking mandates will accelerate the merging of technology.

The world is on the threshold of something great.  The seemingly independent technologies and advancements in the fields of biology, computers, artificial intelligence, augmented reality, robotics, and 3D printing, will merge into one new human revolution which will spark an enhancement of intelligence and create the momentum which will push humanity into the 22nd Century.

Watch for the next phase of this monetary transformation to take form through a sovereign debt crisis and the expansion of SDR bonds and the SDRM process.  The solutions are being established up front so that the reaction can be directed after the problem materializes.  – JC