Tom - there’s a good write up about the US situation here:

Extract:

"When fiscal imbalances are large and fiscal credibility wanes, it may become increasingly harder for the monetary authority to stabilize inflation around its desired target. If the monetary authority increases rates in response to high inflation, the economy enters a recession, which increases the debt-to-GDP ratio. If the monetary tightening is not supported by the expectation of appropriate fiscal adjustments, the deterioration of fiscal imbalances leads to even higher inflationary pressure. As a result, a vicious circle of rising nominal interest rates, rising inflation, economic stagnation, and increasing debt would arise.”

“The bureaucracy is expanding to meet the needs of the expanding bureaucracy.” - Oscar Wilde

I think this is relevant here.

Scott Galloway:

“Don’t follow your passion, follow your talent. Determine what you are good at (early), and commit to becoming great at it. You don't have to love it, just don't hate it. If practice takes you from good to great, the recognition and compensation you will command will make you start to love it. And, ultimately, you will be able to shape your career and your specialty to focus on the aspects you enjoy the most. And if not—make good money and then go follow your passion. No kid dreams of being a tax accountant. However, the best tax accountants on the planet fly first class and marry people better looking than themselves—both things they are likely to be passionate about.”

If the USD price of Bitcoin falls because of this development (whether actualised or not), then perhaps the market is inefficiently pricing Bitcoin’s ability to resist unjust wealth grabs by the State.

Or: the market has correctly surmised that most Bitcoin holders would easily cave in to the State.

An interesting take on Europe’s woes:

If the original intent of the North Atlantic Treaty Organization (NATO) was to “keep the Soviet Union out, the Americans in, and the Germans down,” it would seem the war in Ukraine is accomplishing at least one of those objectives. Germany—and Western Europe in general—has suffered mightily as a consequence of policies implemented with full US support. The situation is especially acute in the energy sector, where observation would indicate the overt goal of US foreign policy is to cripple the ability of Germany to compete in the global economy. If this indeed was the objective, it seems to be working splendidly…

The positive pull of technology and non-State aligned economic activity vs. the negative pull of monetary debasement and State-aligned corporate activity.

I think this particular tug of war is central to the human condition.

‘where government debt yields less than the nominal GDP growth rate, politicians can spend money faster than Sam Bankman-Fried at an Effective Altruism charity event.‘

France and Switzerland. Same continent, different planets.

Oof. How strong are the cigarettes you smoke?!

‘BlackRock will be able to outbid Swan on buying influencers in the same way they are out bidding the American public for buying single family homes.‘

No, we should ditch Bitcoin and buy ‘distressed securities’:

——

Marks’ own firm, Oaktree Capital Management, specializes in investments in distressed securities.

“When you talk about rates being higher than they have been for the previous 14 years, that’s an advantage that we enjoy today. Investors in sub-investment-grade credit instruments — high yield bonds, senior loans, mezzanine finance, etc. — today can get interest rates that approach or exceed the historic average return on equities, which is about 10%,” Marks said.

“And I think the ability to get equity-type returns from investments that offer contractual returns in that vicinity is a tremendous advantage that we did not enjoy for that whole low rate period. So, you know, we’re very excited about the future for the things we do.”

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

Ernest Hemingway

‘… we (already in the system Bitcoiners) have to do our part to bring the benefits to the masses before the rich get their hands on it as they are certain to fuck it up!’

The rich have succeeded within a broken monetary system; I don’t see why they would mess up a superior monetary system.

I want the fiat rich to become richer in Bitcoin and I want the fiat poor to become richer in Bitcoin too.

Trying to overengineer a social outcome is likely to cause more harm than good.

This prompted me to refresh my understanding of fiscal dominance.

— Fiscal dominance occurs when central banks use their monetary powers to support the prices of government securities and to peg interest rates at low levels to reduce the costs of servicing sovereign debt. Although the Fed may not call its unconventional monetary policies “fiscal dominance,” there is no doubt that the distance between fiscal and monetary policy has narrowed since the 2007–2008 financial crisis, and especially since the pandemic. — While Fed Governor Waller provides a strong case for Fed independence and for separating fiscal from monetary policy, his complacency about the risk of fiscal dominance ignores historical episodes of capturing the Fed for fiscal purposes during peacetime. In particular, since 2007 the Fed has moved closer to fiscal dominance by its intrusion into the fiscal space, using Section 13(3) emergency credit allocation and lending (e.g., housing finance, corporate debt, municipal bonds, and Main Street lending), and monetizing government debt. Moreover, with rising levels of debt to GDP, there is a plausible case that the Fed may once again turn to yield‐​curve control—that is, peg interest rates on U.S. debt at politically favored rates to keep financing costs under control.

Ignoring those threats allows the Fed to conduct fiscal and credit policy under the pretense of monetary policy. This is a masquerade that eventually will be unmasked. The Fed has already crossed the bright line between fiscal and monetary policy. It’s time, says Plosser, “for the Fed to take a step back and reconsider its commitment to an ‘ample reserves’ operating system and to take more seriously the current threats and how its own actions are undermining its credibility and the case for independence.” Thinking about the risks and implications of fiscal dominance is a worthy endeavor, even if there is no serious threat at the moment.

Source: A 2021 Cato article:

I love the irony of the guardians of fiat holding gold in reserve.

Brilliant. Philosophical gems spread throughout the satire.🫡

What a bizarre world we live in. Powell looks like a good guy (higher rates for longer) compared to Lagarde (join us in our monetary debasement).

I fear future generations will despise us for putting up with this nonsense for so long.

Nice. I’ve posted a snippet of this into nostr; more people should benefit from your insights.

It seems Lagarde is inclined to cuts rates - unless there’s a big surprise. Perhaps these big surprises help sustain the unsustainable: major shock > contraction in demand > monetary velocity drops > a nice opportunity to open the monetary spigots.

I found this on nostr:

Even if Bitcoin could support infinite transactions at zero cost, I suspect over half of the world would still prefer to use some form of bank or ETF wrapper. That’s not a knock on Bitcoin, it’s a knock on ourselves.

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This note from Lyn Alden seems relevant to your step by step comment:

A couple months ago I had a discussion with the head of digital assets at a multi-trillion AUM financial institution about the topic of whether bitcoin is a risk-on asset or a risk-off asset.

This wasn’t about what it is conceptually (i.e. globally portable finite bearer assets are conceptually good to own in a crisis, neither of us disagreed on this), but rather how its price would actually behave in a crisis currently and for the next several years.

Their view was that it could be marketed as a risk-off asset, meaning something that is likely to go up in a crisis, and that if marketed this way it would allow them to put bitcoin ETFs into more portfolios and weight it bigger.

My view was that while of course people should own bitcoin, it’s not yet a risk-off asset in practice in terms of price action, and that marketing it that way is likely to lead to disappointment for those that expect it to perform like that.

We then got into a discussion about how bitcoin went up in the March 2023 banking crisis. They suggested that this is evidence of emerging risk-off behavior, to their point.

I disagreed, and clarified that in my analysis the closest correlation to bitcoin price action is measures of global liquidity. Some types of crises are pro-liquidity and some are anti-liquidity, and will likely affect bitcoin’s price accordingly.

The March 2023 banking crisis was a pro-liquidity event because it was quickly apparent that the Fed/Treasury would bail banks out fast and slow their rate hikes. Therefore, bitcoin went up not because it was a risk-off asset per se, but rather because it behaved as a pro-liquidity asset as it frequently has.

The Iran/Israel event this weekend was an anti-liquidity crisis because it contributed to a flight-to-safety move toward the dollar (i.e. the unit of account for which the most debt is denominated in, and debt represents inflexible demand for that unit). A sharp move up in the dollar is bad for global liquidity because it hardens the debts of various foreign entities (sovereigns and corporations) relative to their cash flows (which are to varying degrees partially or completely denominated in fiat units other than the dollar). And so bitcoin behaved as it normally does: it went down amid falling global liquidity.

At this stage (with its relatively small size, high volatility, and poor understanding of most people for the asset), I continue to view bitcoin price action as likely to be pretty correlated with global liquidity for a while. Understanding that dynamic is helpful when communicating expectations to people and when determining which types of crises are likely to push its price up or down. Yes, bitcoin is a risk-off asset conceptually, but in practice in terms of macro price action it is still a pro-liquidity asset primarily.

When bitcoin price action starts to behave differently from that trend, I’d be happy to report on that observation.

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