Central banks print thousands of billions as if nothing was wrong but everything comes at a price. The inflationary backlash from “accommodative” monetary policies promises glory to Bitcoin.
Night fever, Open bar at the FED
The president of the FED, Jerome Powell, released heavy artillery by reactivating the ” Quantitative Easing (QE), a deliberately abstruse word for not having to say “money board”.
To understand what is meant by “QE”, we must start by saying that states borrow money from commercial banks in exchange for IOUs, public debt securities in short. “QE” means nothing but the central bank’s buyout of these debt securities with created money ex nihilo.
The FED has therefore just printed 700 billion to redeem debt securities of the United States federal state. Two major consequences:
1) Commercial banks discard public debts in exchange for fresh, liquid cash.
2) States no longer reimburse these debts to commercial banks But to their new owners, the central banks.
This second point is very pleasant because the central banks are obliged to return their profits to their respective states. The FED, for example, paid $ 54.9 billion to the U.S. government in 2019.
The European Central Bank also does “QE”. It has already bought back more than 2,500 billion debt, or just over 20% of the public debt of the euro zone…
We are happy to explain that the euro zone has benefited from the lower rates induced by these debt buy-backs, but the media are still ignoring the benefits of no longer paying interest on 20% of the debt … Hush, that could encourage us to abolish usury …
When there is more, there is more
The Fed has also lowered its key rate urgently, that is, the rate at which commercial banks can borrow from it. The rate is now close to 0%, the lowest ever. The rent for the money is free …
And it’s not finished ! No more constraints in terms of compulsory bank reserves. Let me explain: in normal times, to lend 33 euros, banks must keep at least 1 euro on hand. Put another way, banks can lend 33 times more money than they actually have. We call this the “Fractional reserve system”. Another abstruse term not to say that the money we think we have in our bank account, doesn’t really exist …
All this after having injected 1,500 billion on the interbank market (3-month loans) last week. Result: the stock market bloodbath continues. Gosh…
At the point where we are, “Monetary helicopter” will probably be the next step. The central banks will distribute free money to each citizen. Some call it “universal income”, others call it “magic money”, depending on the caste to which one belongs. In crypto, we talk about airdrop.
The use of negative rates is also an option. It’s about paying people to borrow. The other, less pleasant version is a negative rate on savings to encourage consumers to consume part of their savings. But for that, it will first be necessary to make the cash disappear …
This ocean of cash does not raise the stock market because the Coronavirus is just a drop of water which broke a vase filled with deeper ailments.
The Covid19 allows the powerful to wash their hands – it’s trendy – but the pandemic has a good back. It is more honest to say that this crisis is above all linked to the conjunction of a debt bubble, a peak in oil prices and very strong geopolitical tensions which manifest themselves in the form of proxy wars (Syria) and economic wars (embargoes against Iran and Russia / trade war against China). We could almost talk abouta crisis of capitalism.
Let’s start with debt. The latter is anything but fortuitous. It is the foreseeable and inevitable consequence of a system in which all money is created from debt. It is an integral part of the monetary system as we designed it. There is exactly as much money in circulation as there is debt. Money = debt.
Sorry to insist, but every penny in circulation has necessarily been borrowed before.
And who says loans says interests. Interests whose money necessary for their payment has never existed and will never exist so that if we do not increase the global debt, our economy becomes a game of musical chairs whose losers are cornered companies to bankruptcy because they can’t find enough money in the economy (recession).
This dead end is so tragic and absurd that it becomes almost difficult to believe but it explains, however, why our modern society must generate ever more debt and therefore always more growth, even if it means giving free money or paying the new generations to go into debt and keep the music going.
But by dint of getting into debt and injecting thousands of billions into the system, today we face two pitfalls. The first has been well summarized by John Adams, the second President of the United States:
“There are two ways to conquer and enslave a nation. One is by the sword, the other by debt. “
The hand that gives is above that which receives, as they say … Our policies are no longer anything but stooges of bankers.
The second pitfall is inflation. This ocean of money acts like a tide that would raise all prices at the same time. And since 60% of the money created originally comes from home loans, the stone has become overpriced. In England in the 1930s, the price of a typical three-room house was only 1.5 times the average annual salary.
In 1997, the average price of housing was 3.6 times the average salary and today we are 8 times the average salary (12 times in London…). How long will this ponzi system last? ..
Regarding peak oil, I refer you to this article. But to make a long story short, since transport works 95% with petroleum, the peak expected in 5 years is likely to seriously cut growth. If the price of a barrel rises above $ 150, entire sectors of the economy will not survive because of the increase in production costs. However, without growth, debts cannot be repaid, which necessarily leads to a monetary reset.
Finally, from a geopolitical point of view, coronavirus or not, we had to expect that China, sooner or later, ceases all trade with the United States. As a reminder, Donald trump imposed customs duties of 25% on approximately half of imports from China. The standoff continues only against the backdrop of a pandemic with the Russians and l‘Saudi Arabia who throw fuel on the fire by dropping the price of a barrel to destabilize the American shale oil industry (which needs a barrel at $ 65 to survive …).
The games are done, nothing is better
“You shouldn’t blame the events. “
Marc-Aurèle, Roman emperor
The FED has just understood that the crisis of confidence will not be solved with paper. In fact, Russia and China challenge the United States precisely because they print far too many! …
The United States is currently creating $ 4 of debt to generate $ 1 of GDP.
Nothing is easier than importing the work of others into debt when you have the international currency (the one that the whole world has to get somehow to be able to buy oil). But the EDF it will be nice to print dumpers of greenbacks, if the Chinese ports remain blocked and the price per barrel remains at the bottom, then the American debt bubble will eventually explode. And the dollar with …
The world will then come together for a new Bretton Woods, the famous conference of 1944 during which we agreed on the new version of the international monetary system. It was decided that an ounce of gold would be worth $ 35 and we trusted the Americans so they don’t abuse the money board. We all know how this story ended (hint: Nixon, 1971).
If gold returns to the center of international trade, we will quickly be faced with the eternal concern of the barbaric relic: the impossibility of paying in gold dust. Gold is a superb store of value but a poor means of payment.
We will therefore once again be obliged to decree that a 100 yuan or 100 euros note is worth so much gold and we will fall back into the glitches against which Satoshi Nakamoto warned us:
“The basic problem with traditional money is the trust it needs to work. You have to trust the central bank not to devalue the currency. However, history shows that this trust has always been betrayed. “
Bitcoin does not have this defect. Bitcoin dust is called satoshis.
Child of Satoshi, the alchemist who turned a cryptographic algorithm into gold.
I’m talking about monetary geopolitics, not shitcoins.