The dollar's safe asset bubble faces vulnerabilities as markets question its dominance

Investors are increasingly avoiding US long-term bonds, raising doubts about the sustainability of the dollar's dominant role. A May 2024 lecture discussed the privileges and vulnerabilities of the "safe asset bubble." While a sudden collapse is unlikely, changes in market expectations could abruptly destabilize the dollar's singular dominance. This phenomenon, termed "bubble mining," allows countries issuing safe assets to incur debt beyond their repayment capacity. The lecture highlighted that the value of safe assets is highly dependent on market sentiment. A sudden stop in capital inflows could lead to a rapid reversal, impacting public debt sustainability and risk asset bubbles.