Chief Investment Officer
Summary: The sustained and worsening divergence in current accounts between a group of surplus and deficit countries is a result of managed currencies and is not sustainable long-term. As the US debt situation has become uncontrollable, a group of six deficit countries form a ‘Rome Club’ to cooperate on reducing deficits by collectively negotiating new world trade terms with the surplus countries. We see gold, silver and cryptocurrencies doing very well in an unpredictable environment for the world’s reserve currency and the unsustainable current accounts among deficit countries.
A ‘Rome Club’ is created to reduce the current account deficits of a group of highly deficit countries. In theory, an open and free trade economy is governed and self-regulated through currency adjustments, where deficit countries see their currencies devalue to reset competitiveness. In reality, many, if not almost all, countries control their currencies and, thus, end up creating either permanent deficits or surplus. We simply have a semi-fixed global currency regime, and this hinders the whole concept of free trade and there is no way the WTO can find a golden path to reduce this burden of ever-accelerating deficits in some nations. This leads to the formation of the ‘Club Rome’, which is a cooperation to fix the ever-growing divergence in the global trade and financial system.
In 2024, under a strong global recession and limited tools to cut interest rates due to persistently high inflation, the world’s largest deficit countries gather in Rome to set better terms for structurally reducing these surplus countries’ ability to keep growing their surpluses. The argument goes that resetting the deficits through gradual pegged revaluations of the surplus countries would enable a global reset, creating a more equal and stable economic model. The six founding countries of the ‘Rome Club’ are the US, UK, India, Brazil, Canada and France. Adjusting the divergence of the current account between the key countries is going to be a painful adjustment for the highest surplus countries which are China, Germany, Norway, Japan, the Netherlands and Singapore. \
The fact that US debt became uncontrollable in 2022 is the key catalyst. When the Paris Club, the official lenders club, was created in 1956, the US had a total debt of 273 billion, but fast forward to today and the debt balance sits at USD 33 trillion, a whopping increase of 14,000%.
Market impact: The fact that the world’s reserve currency is spinning out of control reduces faith in the fiat money system, setting up big gains for gold, silver and cryptocurrencies.
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)