The Great Monetary Magic Show
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| By Juan Villaverde |
While the world hangs on to every polished word served up by Federal Reserve Chair Jerome Powell, let’s take a step back. We need to revisit the reason why we dared to dive into the tumultuous waters of cryptocurrency.
The grand revelation? Currency debasement isn’t a far-off storm; it’s our daily weather forecast.
I’ll admit, J. Pow puts on quite the performance. He could easily give Broadway a run for its money.
But let’s not forget he was handed a rigged game from the get-go.
The U.S., along with its high-rolling friends in the developed world, is caught in a debt cyclone that can spin out in one of two thrilling acts:
- Outright default: Governments throwing in the towel, unable to pay their debts. This results in a dramatic currency famine and a heart-stopping plot twist in the government bond markets.
- Stealth default: Governments masterfully use central banks to “creatively manage” their growing debt, leaving the public watching the wrong hand. Inflation — our persistently annoying guest — becomes a permanent tenant as currency debasement steadily erodes the towering debt pile.
As it turns out, we’re already knee-deep in Act 2: stealth default via currency debasement.
The plot was set in the 2000s, when private sector debt rocketed, culminating in the 2008 financial fiasco. Governments swooped in like knights in shiny armor, transferring these debts onto the unsuspecting shoulders of the public sector.
Despite the plot twists and cliffhangers, make no mistake. This isn't some fresh start in the war against inflation. It's more of an intermission.
The Fed and other central banks were rudely awakened by rising inflation numbers, sending them into a flurry of rate hikes.
Now here's the grand finale. Powell will soon be taking his final bow, possibly basking in a shower of applause for having "vanquished the inflation monster."
But the encore is bound to come as the curtains of his term fall, revealing that the monstrous debt load guarantees that inflation will continue its feature performance in the global economy's decade-long show.
So, when the new Fed chair steps onto the stage, they'll likely be tasked with lowering the policy rate and cranking up the printing presses again.
Just like that, the never-ending drama of debt monetization will continue its run, with asset prices stealing the limelight and inflation remaining the persistent understudy.
Hope you've got your popcorn ready for this thrilling financial saga.
Alex Benfield’s Notable News, Notes & Tweets
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Hi, all!
This week, we’re trying something new. Just in case you missed them, I’ve combed through the crypto sphere to gather the top narratives from the past week and laid them out for you below.
If you like this new format, please write in to let us know using our “Contact Us” form.
- Earlier this week, there was an interesting development in the case against founder and CEO of cryptocurrency exchange FTX, Sam Bankman-Fried. Namely, the Southern District of New York dropped its case against SBF on campaign finance charges.
If you recall, SBF was the second-largest donor for the Democratic Party in the last election cycle. But he was donating money that he stole from FTX users.
However, it has come to light that the government had to drop the charges over some complications in the extradition agreement from the Bahamas. So, it plans to bring back the charges in the future.
- Another big development this week was a big crypto market overhaul bill that is making its way through Congress. This would help clarify the U.S. regulatory stance on digital currencies and promote industry growth in America. However, there is some opposition forming in the Democratic Party.
- However, Democratic opposition to cryptocurrencies is not unanimous. Just take Democratic presidential candidate Robert Kennedy Jr. for example, who has recently purchased 14 Bitcoin (BTC, “A-”) — two for each of his seven children.
- Apple (AAPL), Amazon (AMZN), Volvo (VOLAF), Samsung (SSNLF) and Google are just a few of the big names pulling out of China. My Weiss Ratings colleague Sean Brodrick just revealed where all those jobs — and money — are going. And in the answer is a $2 trillion opportunity for U.S. investors.
You can learn more here.
What’s Next
It looks like the stage is currently being set for the next chapter in the crypto market’s young history.
Right now, the macroeconomic background is developing new storylines, and regulatory clarity that once seemed like a distant dream is becoming increasingly likely in the U.S.
Paired with the uptick in institutional interest that we’ve seen lately in the form of Bitcoin exchange-traded fund applications, it becomes easier to see what the next cycle’s narratives might have in store for us.
As always, we will keep you posted on the state of the market, so make sure to tune in for our updates. We look forward to your continued interest in the world of digital currencies.
Best,
Juan
