The issuers seem confident that the stick can be used as effectively as the carrot. But one does not abandon the carrot when wielding heavy the stick. Instead one sweetens the rewards of loyalty among the systemically connected. Thus we see Dollar System banks (wherever they are domiciled) incentivizing the "correct" thinking in our global financial derivatives (thoughts of value) complex.
Perhaps this is why our US FED primary dealers have been shifting their derivative positions from interest rate based to FX based positions, to insure dollar exchange value more directly. No one is pointing to it, but just review the OCC reports between 2008 and 2018. Total derivatives have actually shrunk by a few trillion (as reported). But the shift away from Interest Rate and into FX forwards, swaps and exotics is quite remarkable.
As we know, our modern digital (and paper) currencies are mere "thoughts of value" which exist in the "conceptual realm" - a realm which transfers conceptual value in the financial plane to material value in the physical plane. As we have discussed many times before, our derivative world governs our material world (derivative tails wagging underlying asset dogs). But there is a balance between the two planes that must be maintained in order for both to co-exist.
As we have noted in prior posts, things such as "rule of law" and "depth of usage" help to govern that balance. Our currency denominated financial derivatives support the conceptual realm which governs our financial plane of existence. Oddly, it is a circular construct which controls the marketplace for the very currency values which transfer to the material world.
Financial derivatives reward correct thinking and punish incorrect thinking about thoughts of value, and this allows our money to function in the material world. The reward and punishment elements in this process are the very currencies which credibility the system ultimately serves to protect.
Incorrect thinking about the direction interest rates are headed over the next five years are punished by the loss of vast sums. Correct thinking brings equally rewarding gains. Incorrect thinking about the value of certain currencies is punished, just as correct thinking is rewarded by the loss or gain of, again, derivative currency units.
This crux of our derivative "thoughts of value" system can be summed up merely as "confidence".
Like faith, confidence is a human emotion which exists in that conceptual realm where fiat currencies "free" markets, and other conceptual derivatives exist. It is truly the one critical element that ties the financial plane to the physical plane. Without confidence in the ability of our markets, our currencies and our derivatives to function, they will not. Rule of law or depth of usage can increase confidence when applicable, but neither can save the currencies once true loss of confidence occurs. If a nation holding dollars believes those dollars will lose their function (thus their value) the currencies are doomed.
But of course you've been told this by your FED Chairman and your Treasury Secretary (and their systemic counterparts in other nations) several times before. Please understand the importance of this one true statement among the mountain of lies. The dollar system has effective ways to reward its believers, users and benefactors for having confidence in its almighty power. And it uses itself equally effectively to punish its doubters.
It will take a great financial calamity, I suspect, to escape this confidence game played by the dollar system. The alternative is a never ending parasitic relationship between issuer and user ... where the issuer plays the carrot against the stick quite effectively. It's called "kicking the can" in some circles. Expect a slow stagflation that inexorably shifts material wealth from the user (debtor) class to the issuer (lender) class. Much like the last 50 years or so.
Indeed the families prefer a world where the 1% have more wealth than the bottom 99% combined, and all is peachy. But in the material world, as we approach that tilting of the scales, the world is not so peachy as hoped, and confidence in that scheme also wanes.
You see, if the "correct" people lose confidence, all will follow.
One last thing. In a world where conceptual value is tied to material value by something more powerful than confidence, the sequence of events over the past half century that bring us to today would never have transpired. That something is gold. And the correct people know this.