Strange times when you read in finance publications that we have to thank the central banks for being our saviour's.
But that’s an important point of the narrative to understand as monetary and fiscal policies are going to shape the economy for the years to come.
If what they have done so far is labelled as essential, be prepared for more to come.
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Jay Powell, he’s here to help
Fed Chairmen are the new heroes. Or at least this is what you’d think after reading this Jerome Powell profile on Bloomberg last week.
Let’s go through some hilarious quotes from the article.
“We crossed a lot of red lines that had not been crossed before.”
Jerome Powell
The Fed Chairman is not kidding when he is saying that:
M2 is up 25% this year.
$3.1 trillion of assets added to the Fed’s balance sheet in a few months.
The Fed is even buying corporate debt.
That’s only a few of the red lines that I can think of right now. But for sure those are pretty big red lines.
Take the growth of M2. Between 1980 and 2019 the US M2 money supply averaged a year over year growth of 5.85% with peaks at 10%.
Then comes 2020 and... well, let’s just say this year stands out. Take a look.
It all comes down to the speed at which the Fed is injecting money into the system. This time it was fast. So fast it should make your head spin.
Can you spot when the Fed emergency intervention started? I know it’s hard but give it a try...
The narrative around this is that the Fed saw the crisis coming and was prepared when it happened… but the timing looks dubious to say the least.
A more likely explanation is that the stock market crashed and the Fed did the only thing it knows, create liquidity.
But of course that’s only the beginning. Jerome Powell is pledging to do more.
“[Jerome Powell] also shunted aside the Fed’s long-held concern about risking a loss of its political independence and aligned monetary policy with fiscal policy of tax cuts and spending increases overseen by Congress and the White House.”
“Powell urged lawmakers to go big on relief for hard-hit households and businesses even as the central bank snapped up trillions of dollars in Treasury debt that such largesse would generate.”
Printing money and handing it to your government in exchange for US Treasury bonds… hmmm… that has a name you know. It is called monetizing the debt.
In essence, what Jerome Powell is saying is: have the government distributes money created out of thin air and who cares if as a result that same money ends up losing its purchasing power.
Seems rather counterproductive over the long term but hey, as long as the stock market goes up.
And with targets like these
“Powell wants to lift too-low inflation by pushing joblessness down as far as possible.”
, you can be sure that this is not going to stop anytime soon.
The Fed is going for the same playbook as in 2008 a.k.a. QE forever. Except this time the focus seems to really be debt monetization.
Some people seem to like it though:
“He was early, he was aggressive, and by all accounts the Fed stopped a financial crisis single-handedly.”
Julia Coronado, founder of research firm MacroPolicy Perspectives LLC
Needless to say infinite monetary expansion will lift the value of all financial assets denominated in US$.
That’s bad for most people but it is good for Bitcoin.
Space Coins
Bitcoin’s trip to the Moon is cancelled. Get ready for Mars instead:
Go past the meme and check out the responses to this tweet. You’ll find Michael Saylor sharing BTC Treasuries tips with Elon…
So is Elon Musk going to start buying Bitcoin for Tesla, SpaceX and so on? That’s not impossible.
And that would be big.
To give you a sense of scale:
MicroStrategy uses Bitcoin as a treasury asset but it’s only a $3 billion market cap company.
Square also has some Bitcoin in their treasury and this time the company has a $106 billion market cap.
Now think bigger. After its inclusion in the SP500 last week, Tesla has a market cap of $659 billion.
If Tesla started to use Bitcoin as a treasury asset it would be the largest company to do so as of now.
If Elon goes through with it, I’d say this will be good for Bitcoin.
Bitcoin and bananas
Apparently Mark Cuban still doesn’t get Bitcoin. Or does he?
I’m a bit confused after reading this article from CNBC.
Mark Cuban agrees that Bitcoin is a store of value. Ok, so that means he understands it, right?
Then he argues that Bitcoin is too volatile because its supply is limited. Ah ok, so he doesn’t get it.
Bitcoin is not volatile because its supply is limited by code. Bitcoin is volatile because it is in its early adoption phase and because the market is still small. When we reach a high level of adoption expect the volatility to be much smaller.
Moreover the point about volatility is moot. In terms of risk adjusted returns Bitcoin is simply a better deal than any other asset. We covered that last week.
Finally, just to confirm that really Mark hasn’t thought about Bitcoin very much, we have the bananas comparison:
“I would rather have bananas than Bitcoin. Bitcoin is what it is, something that enough people have agreed upon is an investable asset. But a banana has more utility, potassium, is a valuable nutrient to every person on the planet .”
Mark Cuban
Thank you Mark for completely missing the point.
Mark would like to have bananas, I’m partial to a good steak with french fries but that doesn’t make either of those good currencies or stores of value.
Good luck preserving your wealth by buying a truck load of bananas. I’ll stick with Bitcoin.
That’s it for today. If you have learned something please subscribe and share to help the newsletter grow.
Cheers,
Nick
The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:
Click on the subscribe button right below.
Done? That’s great!
Now let’s dig in.