XRP and The Federal Reserve’s delta hedge
There has been growing doubt about the solvency of the US government over the past few years among certain crowds of economists and hedge fund managers. The following chart summarizes well the situation the US Treasury has painted itself into.
This ratio of US Debt to GDP has not been seen since the end of WW2. It does not take a rocket scientist to figure out this is not a good situation to be in, especially with interest rates near all time lows on a 50 year horizon. Typically the Fed can lower interest rates in a recession but that option is now a relative weak one. If the US hit a recession soon, GDP will decrease, and the Fed will have less money to pay debt back from taxes on GDP. They could cut back on spending in wars abroad to help finance debt payments, increase taxes, print more USD, or a combination of all of the above. The only option that seems likely to not decrease the ability to become re-elected as President is print more USD, as it is a silent but deadly force. Average fly-over-state Americans do not care much about money printing so its a easy short cut.
Which brings me to my final point. If I was working at the Federal Reserve, I would start thinking about proper hedges to a failing US Dollar. Now hedging, as in the Black-Scholes options framework, requires one to estimate the chance that something will finish out of the money…