The Great Reset and the Rise of Bitcoin
The governing council decided the following: First – We will continue to conduct net asset purchasesunder the pandemic emergency purchase program with a total envelopeof €1,800 billion, until at least the end of March 22and in any case until the governing council judgesthat the coronavirus crisis phase is over.
Morning Joe, you have the European Central Bankdoing what economists thought they were going to do. They added to their pandemic emergency purchase fund by €500 billion. By my count, that takes it up to 1.85 trillion total. It is an absolutely historic,both in terms of thespeed of FED purchasesand of course, the magnitude. Here’s a chart that shows what’s happened since March, the last three weekshave seen this huge ramp up in a ways that you’ve never seen before.
And let’s look at what’s changed heresince the FED last met, we got to $1.9 trillion in reliefenacted by Congress, signed by the president. Senate Democrats have just released the text of their $3.5 trillion budget resolution. Can you characterize everything that the FED has done this past weekas essentially flooding the system with money?Yes, exactly. And there’s no end to your ability to do that. There is no end to our ability to do that.
Simply flooded the system with money. Yes, we did. That’s another way to think about it. We did. Where does it come from, do you just print it? We print it digitally.
So we, you know, we as a central bank, we have the ability to create money digitally. And we do that by buying treasury bills or bondsor other government guaranteed securities and that actually increases the money supply. We do believe that inflation numbers in 21, which we will see rising. I can’t find any period in historywhere monetary and fiscal policy were this out of stepwith the economic circumstances, not one. In six weeks last spring.
We did more QE, more purchasing of treasuriesthan we did the entire time in a 9 year period from 2009 to 2018. And if we ever get into inflationary psychology, like for instance,we did when I was in my twentiesback in the seventies, if we ever get that again. And if you ever got retail actually nervous about inflation,then the one thing that leads inflation, which is commodity prices,it’s the easiest tautology there is,those things can literally scream double or triple with no problem whatsoever. And valuations for both interest rates and stocks are at,if you combine the two, they’re so overvalued,they’re at 100 year highs. I don’t know what you do.
I am so afraid of democracygetting the idea that you can just print money to solve all problems. And eventually I know that will fail. In the end, if you print too much, you end up in something like Venezuela. It’s mathematics. The fiat currency is now the error term that solvesthe growth in the numerator, which is your total global debtversus the denominator, which is total global GDP.
And we have reached a point of no return where the numeratoris going to outstrip the growth of the denominatorunder any plausible scenario, which means you need to print moneyto solve that debt spiral. We’ve all heard of our economic cycles and how according to most modern economy books, it is normal to have a period of very quick growth and expansion,followed by a period of contraction and economical crisis,as described in 1946 by Arthur F. Burns, former counselor to the presidentof the United States, and Wesley C. Mitchell, American economist. Business cycles are a type of fluctuation foundin the aggregate economic activity of nations.
A cycle consists of expansions occurring at about the same timein many economic activities, followed by similarly general recessions. This sequence of changes is recurrent, but not periodic. History, though, shows us that before the 20th century,financial crisis arrived because of external events. The most popular being war. There had been only one financial crisisnot attributable to external events, and this was the panic of 1825,where around 70 banks went bankrupt due to risky investments.
And because of this man, Gregor McGregor,that had pulled big investments into colonizing a country, that didn’t exist – Poyais. If we look at history, what turns out, what we find out is the fact thatthis cycle really started about 100 years ago,and there’s an important factor to that. It’s the fact that in the year in 1914, every big nation in the worldjust started leaving the gold standard. Now, the gold standard is the fact that all of the moneythat a central bank has, controls or producesis only based on the amount of gold that they hold and the price of gold. Therefore, the amount of moneysupply available is relative to the gold that is held.
This was dropped. And this is what led to a lot of financing for the first World Warand even following the second World War, because governments realize that they have this huge powerthat is, get rid of the gold standard and we can just print moneyas much as we want. And in fact, this happened many times in history and was often the reasonwhy governments, countries or civilizations were simply dropping. The Roman Empire is a great example of that. From the moment we dropped this gold standard,so around the year of 1914, the UK was the first country to do that.
This is the moment where we started seeingthese short term and long term cycles, particularly the short term cycles. We are now over 100 years after leaving the gold standard,and it is a fairly accepted fact that our economy works in cycles,based on a period of inflation, followed by a period of deflation. The fact this only started 100 years ago should tell you that our monetary system has flawsall while being the reason for the unmatched growth we had as a speciesin the 20th century. This inflation is due to our reliance on debt and credit. According to modern monetary theory,debt is the driver of economic growth, not productivity.
Ray Dalio explains this well in his video -How The Economic Machine Works. Over time we learn and that accumulated knowledge raises our living standards,we call this productivity growth. Those who are inventive and hard working raise their productivityand their living standards faster than those who are complacent and lazy. But that isn’t necessarily true over the short run. Productivity matters most in the long run,but credit matters most in the short run.
This is because productivity growth doesn’t fluctuate much,so it’s not a big driver of economic swings. Debt is, because it allows us to consume more than we producewhen we acquire it, and it forces us to consume less than we producewhen we have to pay it back. And as stated by Dylan LeClair in his great article -The Conclusion of the Long Term Debt Cycle and the Rise of Bitcoin. Although productivity is the most important aspectof any economic system over the long term, not productivitybut the forces of debt are the main driving forces in volatile economic swings. Coming back to the cycles, Ray Dalio describes the long term and the shortterm debt cycle and how they relate to human productivity.
Debt swings occur in two big cycles. One takes about five to eight years and the other takes about 75 to 100 years. While most people feel the swings, they typically don’tsee them as cycles because they see them too close up. Day by day, week by week. The short term debt cycle can be observedby looking at different metrics, including the debt to incomeratios and interest rates set by the central bank.
Yes, the central bank essentially sets the rules that allow our economyto expand into unreasonable debt and later decides when it can break down. This is the so-called boom and bust cycle. The most recent ones being the global financial crisis of 2008and the dot com bubble of the year 2000. The long term debt cycle is made of multiple short term cycles. While our economy goes up and down during each of these cycles,it does bring growth in the long run.
And with each cycle, our economy continues accumulating debtindefinitely because we prefer borrowing than repaying debt. There reaches a moment when there is more debt to pay than income. Historically, this is when the long term debt cycle shifts,people stop spending and start repaying debt. And instead of growing, we go down. We see recessions, increase government support,devaluation of currencies, social unrest and so on.
There comes a time when our economy has sufficiently de-leveragedand the economy starts growing again following the short term debt cycle again. During these de-leveraging events, three strategies are adopted by central banks. First – Lower the interest rates. Interest rates are set by central banks and they set the rules as to what is the cost of borrowing money. If they lower it, then it’s cheaper to borrow money.
Therefore, people will be more inclined to borrow this moneyThis leads to the spiral of just wanting to borrow moreand more and more because it’s just easier to borrow. And right now, if you look at the numbers the central bank,central banks all over the world have been doing this for years nowbecause we work on a standard that is mostly based on the US dollar. What matters is what the U.S. central bank does, and if they lower interest rates, then everyone else will also lower their interest rates. This increases the value of assets and makes it easier to get credits.
This is the first strategy used. Today, these interest rates have already dropped drasticallyfor the main economies and have turned negative in many. If interest rates drop to zero,then there is no logical financial incentive to lend money. It can continue for a while until it doesn’t. Second – There’s quantitative easing, also called money printing.
What this guy was talking about, it allows the centralbank to buy debt securities and financial assets. It places cash in the hands of investors but doesn’t help citizens,asset prices skyrocket, usually creating inflation,which makes asset holders that tend to be the wealthy, richerand the poor, poorer as their savings lose value. This is the case today, with real estate skyrocketing globallyand other raw materials skyrocketing too. Third and last, is increased welfare spendingor other instruments, such as stimulus payments. If there is any kind of crisis, well the people that bought their house,they’re not going to try and do any more financialschemes and things that would allow them toto protect their investment because they just don’t have the knowledge or the skillsand even the instruments to be able to do that.
So they’re the ones that lose the most right because investment banks think they know what’s coming,they know how to deal with it and they’ll get out of it. But this creates basically a gap between the rich and the poor. And this is a lot due to money printing because this moneygets distributed into the economy,but it doesn’t get distributed into the hands of people. It gets paid to banks, it gets paid to investors,and it just gives them another business. And it gives them more cash to be able to take on more positionsand themselves invest in to many different assets, whether it’s the stock exchange,it can be gold, anything.
The poorer people don’t have these options and they don’t have this moneydirectly attributed to them. So it means that like, whileall of this is happening and people are getting rich,others are getting poorerbecause the savings that they have in the bank are losing valuebecause of this money printing and because of that,what governments need to do is they need to help their citizens more. Because of course, no one wants the wealth gap. I mean, it’s not because you’re, you know, part of this elite,let’s say, that is in a better position financially,that you want the poor people to be in a bad situationlike everyone has to be elevated in society and these people needto be helped directly through financing, whatever form it takes. And in fact, if you look at the numbers, it’ssince the crisis of 1929, which was the first big financial crisisafter getting off the gold standard that I was mentioning at the beginningthat this welfare spending has increased so much.