In the world of crypto it is absolutely essential to do your own research. My advice, read a lot but approach everything with a critical mind.
Here are some stuff you should check out this week.
Nick
The Fed Playbook
At the top of the stack are our charts of the week.
Following Jay Powell’s interview on 60 Minutes I think looking at the Federal Reserve balance sheet is appropriate.
In terms of absolute value, the Federal reserve has injected a huge amount of money into the system. In comparison 2008 looks like a joke.
But in 2008 the Fed started from an almost clean balance sheet. So it is more fair to look at the two interventions in terms of percentage increase from their baseline.
In 2008 the baseline was a few hundred billion dollars. In 2020 the baseline is US$ 4 trillion. So in percentage the Fed has not injected that much money into the system.
But to stay in line with the comments of Chairman Powell himself, the point of these comparisons with 2008 is that the initial surge was just the beginning. We are at the start of another multi-year cycle of quantitative easing programs.
As Jay Powell says:
No, there is really no limit to what we can do…
We’ll find out.
We print it digitally.
Here is just an excerpt of this interview of Fed Reserve Chairman Jay Powell on 60 Minutes:
PELLEY: Fair to say you simply flooded the system with money?
POWELL: Yes. We did. That’s another way to think about it. We did.
PELLEY: Where does it come from? Do you just print it?
POWELL: We print it digitally.
…
PELLEY: In terms of size, Mr Chairman, how does what the Fed is doing right now compares to the unprecedented action it took in 2008?
POWELL: So the things we are doing now are substantially larger.
…
POWELL: But I will say that we are not out of ammunition by a long shot. No, there is really no limit to what we can do with these lending programs that we have. So there is a lot more we can do to support the economy and we are committed to do everything we can as long as we need to.
I have nothing else to add.
What are the limits of quantitative easing?
This week Pomp gave us a breakdown of the QE unlimited edition.
The Federal Reserve and the Treasury have been working together as a de-facto Bank Of The United States since the start of the coronavirus pandemic.
This is resulting in trillion of dollars being thrown into the economy with a total disregard for the long term consequences. The first order of business for the Fed is to prop up the financial markets. The second order of business for the Treasury is to bailout powerful industries by picking winners and losers in the economy.
You’ll have a third objective which is to put in place MMT for the people to make sure the government is distributing money to voters in an election year.
This is going to continue until something breaks…
Let’s make it a full Bitcoin
Remember the first round of stimulus? We had $1,200 checks sent around to people in order to boost the economy. Some of those ended up directly financing Bitcoin purchases.
Well we are about to have a second round of this. But now they will bump the checks to be $6,000. So total we’d be at $7,200… come on! Don’t be cheap make it $10,000 already so that people can buy a full Bitcoin and we’ll call it a day.
That’s probably the best use you can make of your stimulus money. Buy Bitcoin, opt out of the system.
We have too much privacy…
…says ex US Treasury secretary Larry Summers. Are you surprised by that? I’m not.
Here is a quote from Larry Summers:
“[…] making it more difficult for anonymous forms of finance to flourish. Of all the important freedoms, the ability to do multi-million dollar transactions anonymously is one of the least important freedoms.”
Fuck. That.
You should read the whole article over at Coindesk for other brilliant thoughts by Larry Summers. Such as nope, the Fed injecting trillions of dollars to the economy does not cause any inflation risk. Only to admit a few sentences later that ok maybe the risk is higher than before.
See also his comment on the line being blurred between the Fed and the Treasury. We had noticed that yea.
Where is inflation?
There is the real question. If the Fed is printing so much money how come the official CPI numbers don’t show any inflation? I think Preston Pysh says it best:
They are looking at the wrong place: QE inflation will manifest not in the prices of everyday things but in assets owned by the wealthiest in society.
And that’s what is creating this great disconnect. QE money flows in a way that inflates the assets of the upper class while the rest of us have to deal with what’s happening in the real economy.
But we do have Bitcoin…
More original content coming soon in the Ecoinometrics newsletter! Subscribe now and don’t miss anything!