US Treasures is no longer a "safe haven"?

Mohamed El-Erian, president of the Royal College in Cambridge and chief economic adviser to Allianz, stated in an interview with CNBC that American treasures are no longer the safe haven in which investors flee in the event of economic shocks.

This is a very serious proposition. If Mr. El-Erian is right, we are witnessing a change in the global economic paradigm.

Until now, US Treasures have been one of the basic elements of the economic system. It was the safest asset guaranteed by US economic, political, and military power.

El-Erian claims that despite the Middle East crisis, investors are not going to hide in US Treasures, preferring alternative assets such as gold and even cryptocurrency.

What has happened? 

For a long time, it was believed that American debt had unlimited capacity. It was true up to a point; the rise in debt did not affect the credibility of the borrower. However, as the interest rate increased, the cost of debt service increased significantly. World crises have forced planning for increased defense spending and aid to allies. Theoretically, such costs can pay off... but not quickly. We need the money now.

Investors' doubts are the first and very serious sign of impending problems. A few negative events are enough for escalation from doubts to panic, which will be very difficult to stop. The start of the US Treasures sale, if it happens, could catalyze a crisis of unprecedented proportions.

I am confident that there will soon be attempts to negotiate with warring parties around the world. The easiest way to reduce tensions between the US and China. If that happens, the likelihood of a global crisis will be greatly reduced. But the US and China are principled rivals, and a truce cannot last forever.

Anyway, we are living in interesting times from the perspective of future historians.

#safehaven #investors #economicturmoil