(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)Thanks for reading Crypto Trader Digest! Subscribe for free to receive new posts and support my work.
As much as I agree on your general view, there is a logical fallacy in your argumentation that the interest paid by the Treasury is stimulative and counteracting the FED's QT program. Every single dollar that is paid as interest must first be taken away from the market by issuing even more debt . It's not adding dollars, it's adding gov debt. It follows that, as QT is much bigger than RRP and IORB, the FED is actually removing dollars from the system, which imho is the only thing that keeps the dollar relatively strong for the time being.
Expectations and flows are probably more important than nominal net. Savings anticipate higher interest income, and recipients of government spending receive flows from savings which they likely parley into more personal debt expenditure. The financial system’s debt crack addition grows and the inevitable QE date accelerates.
I assume that between 2 types of inflation, QT would be most beneficial to TBTF banks and big money, which could influence the decisions of the Fed? Thoughts?
[Taking those three things together, we know that the net effect of US monetary policy is currently stimulative and the money printer is churning out more and more fiat toilet paper.]
I don’t think parking money in a money market account is as stimulative as the growth of the money supply through fractional reserve lending..which is what the fed is trying to slow down.
Arthur - you are a comedic devil that writes with deep experience and intelligence, we love what you do - your writings and most importantly your guidance. Thank you for all you do - the world is better for it.
Wonderful article, insightful and well written. However, IMHO it underplays the impact of rising rates on The velocity of money and demand destruction in the ‘real economy’ . Another conclusion here could be that central banks are forced to keep raising rates until real pain and a collapse in velocity is apparent. I don’t see that as good for BTC or other ‘risk assets’.
It’s bad temporarily, because once a collapse starts, the Fed will be forced to print a metric crapton of money to try and prevent economic Armageddon. Brrrrr means btc booms after an initial crash
"if the US Treasury tried to stuff the market with trillions of dollars worth of long-term debt, the market would demand a vastly higher yield. Imagine if the 30-year yield doubled from 3.5% to 7% – it would crater bond prices". Isn't the causality the other way around? To incentivise buying, newly issued bonds need lower prices and this would cause spiking yield.
I mean, the Fed could set a low interest rate to the US Government deficits and other things it has to; but continue to increase the interest rates for borrowings.
It’s important to distinguish between countries that have significant liabilities denominated in an external currency vs those that don’t. It’s difficult to argue empirically that cutting rates causes inflation in the latter, but easy in the former. Very different choices and outcomes for both.
If things get as bad as you describe, which in time the math problem checks out and history confirms, then wouldn’t the US move to ban crypto given it is a risk of capital flight in that scenario? That’s always been the playbook in prior empires.
I agree we are seeing a walling off now, but an outright ban would change my outlook on Crypto. Definitely think it has to be a portion of your portfolio, but likely needs to be augmented further with hard real assets. Crypto’s necessity is highlighted by this scenario playing out, but this scenario playing out highlights the risk to crypto as a lawful asset. Many examples of this in history.
I don’t give a fuck about what the fed s or the banking system is doing because it’s been happening for decades especially since the dollar is not backed by gold Give some real game to the novice that wok in order to keep somthing you might to give something away to keep it Yes I said it and the giving doesn’t always comes in the form of Money So can I follow you the leader with humility for some game so I can truly say to the Massa I’m Gone!No Cap Keep drinking that great coffee Ya Dig
your writings are as entertaining as they are educational. gracias, amigo.
Damn!!!! Satoshi Disciple...intoxicating Cerebral Geisha Varietal
As much as I agree on your general view, there is a logical fallacy in your argumentation that the interest paid by the Treasury is stimulative and counteracting the FED's QT program. Every single dollar that is paid as interest must first be taken away from the market by issuing even more debt . It's not adding dollars, it's adding gov debt. It follows that, as QT is much bigger than RRP and IORB, the FED is actually removing dollars from the system, which imho is the only thing that keeps the dollar relatively strong for the time being.
There is a good argument that in an era of high fiscal deficits, raising rates ends up being inflationary. Read more here from Lyn Alden https://www.lynalden.com/inflation-vs-interest-rates/
Expectations and flows are probably more important than nominal net. Savings anticipate higher interest income, and recipients of government spending receive flows from savings which they likely parley into more personal debt expenditure. The financial system’s debt crack addition grows and the inevitable QE date accelerates.
I assume that between 2 types of inflation, QT would be most beneficial to TBTF banks and big money, which could influence the decisions of the Fed? Thoughts?
[Taking those three things together, we know that the net effect of US monetary policy is currently stimulative and the money printer is churning out more and more fiat toilet paper.]
I don’t think parking money in a money market account is as stimulative as the growth of the money supply through fractional reserve lending..which is what the fed is trying to slow down.
Arthur - you are a comedic devil that writes with deep experience and intelligence, we love what you do - your writings and most importantly your guidance. Thank you for all you do - the world is better for it.
Wonderful article, insightful and well written. However, IMHO it underplays the impact of rising rates on The velocity of money and demand destruction in the ‘real economy’ . Another conclusion here could be that central banks are forced to keep raising rates until real pain and a collapse in velocity is apparent. I don’t see that as good for BTC or other ‘risk assets’.
It’s bad temporarily, because once a collapse starts, the Fed will be forced to print a metric crapton of money to try and prevent economic Armageddon. Brrrrr means btc booms after an initial crash
"if the US Treasury tried to stuff the market with trillions of dollars worth of long-term debt, the market would demand a vastly higher yield. Imagine if the 30-year yield doubled from 3.5% to 7% – it would crater bond prices". Isn't the causality the other way around? To incentivise buying, newly issued bonds need lower prices and this would cause spiking yield.
on the other hand money disappearing very quickly from economy.
Differential interest rates are out of question?
I mean, the Fed could set a low interest rate to the US Government deficits and other things it has to; but continue to increase the interest rates for borrowings.
It’s important to distinguish between countries that have significant liabilities denominated in an external currency vs those that don’t. It’s difficult to argue empirically that cutting rates causes inflation in the latter, but easy in the former. Very different choices and outcomes for both.
Brilliant and excellent as always. Love your articles Arthur, always learn a lot. Thanks for the content
If things get as bad as you describe, which in time the math problem checks out and history confirms, then wouldn’t the US move to ban crypto given it is a risk of capital flight in that scenario? That’s always been the playbook in prior empires.
they're already doing that, that's why a lot of crypto related businesses have been fleeing burgerland
the empire is on a steep downwards trajectory, panic will soon set in
I agree we are seeing a walling off now, but an outright ban would change my outlook on Crypto. Definitely think it has to be a portion of your portfolio, but likely needs to be augmented further with hard real assets. Crypto’s necessity is highlighted by this scenario playing out, but this scenario playing out highlights the risk to crypto as a lawful asset. Many examples of this in history.
bitcoin (as the first crypto) was never meant to be lawful, but rather the opposite
great prose Sir!
Patience is essential.
I don’t give a fuck about what the fed s or the banking system is doing because it’s been happening for decades especially since the dollar is not backed by gold Give some real game to the novice that wok in order to keep somthing you might to give something away to keep it Yes I said it and the giving doesn’t always comes in the form of Money So can I follow you the leader with humility for some game so I can truly say to the Massa I’m Gone!No Cap Keep drinking that great coffee Ya Dig