Central Banks Clueless, Inflation and Growth - FED 70

In this episode of Bitcoin Magazine’s “Fed Watch'' podcast, Christian Keroles and I sat down to give an update on Fed news and central bank activity around the world. Topics in this episode include, people at the Federal Reserve and their positions, the Fed Stability Report, Treasury curve update and inversions, the inflation narrative, ECB and BoJ updates, and of course, bitcoin.

First, Christian and I debriefed the recent Bitcoin Day event in Kansas City where I spoke about the end of the dollar system as we know it. It was a great event, with another one coming up in Sacramento early next year. I might try getting one down in Jacksonville next year as well, so be watching out for that.

Next, we jump right into Fed news, starting with the resignation of Quarles. This was kind of a surprise since he had over 10 years left in his term. He has recently faced some backlash from progressive members of Congress, along with Powell, as slightly more hawkish members of the Fed who ignore MMT (modern monetary theory) nut-jobs. 

This resignation has a chess move aspect to it. Brainard, who has recently been threatening to take Powell’s job as Chairman, was first favored for Quarles’ position as Head of Supervision. With him gone, Brainard now has an easy path to simply fill that role, leaving Powell basically uncontested for the Chairman reappointment.

These moves might seem insignificant to those who are unaware of the shifting tide within the central bank elite. Most central bankers around the world are looking to MMT and CBDCs (central bank digital currencies) as a way to break out of the debt trap and deflationary environment which the world finds itself in. Powell has the most important central bank job in the world. He has been standing in the way of that dangerous agenda. In a similar fashion to a geopolitical realignment, from NATO to AUKUS, Powell appears to represent the same division, from global concerns to national, within the central bank elites.

This week the Federal Reserve published their biannual Stability Report. This report is meant to increase transparency of the Fed, to show the public what they are paying attention to, and what could possibly affect their monetary policy going forward. The main highlights from the report is the Fed’s warning about a rising risk to risk assets. Of course, the mainstream financial press is going to hop on that with their usual gusto.

Another interest warning from the report was about Evergrande and the rising risk of contagion out of China. We’ve been way ahead on this, talking about this very situation for months now. We all know the horrible shape that the Chinese economy is in, and that is slowly working its way into the mainstream investor consciousness.

My prediction, based on the fact that this report came at basically the same time as the taper announcement, is that the Fed is setting up a scapegoat for when they have to eventually halt or reverse course on the taper. They will blame their “policy error” on China and the sheer power of their monetary policy. It’s comical. Their monetary policy literally does nothing, else we’d have no problems to worry about.

Next we talk about yield curves. We aren’t experts on the bond market, but we know that the bond market is much smarter than we are, and much smarter than the Fed. I highlight that the 20-year and 30-year yields are still inverted, along with the 5-year and 10-year breakevens. The latter being the most inverted in history!

This should tell us that all is not well with this recent market action. Inflation expectations in the future are mixed, signaling a severe retracement in the “recovery” and the CPI.

The inflation narrative is going rabid. It’s gotten to the point where people are making fun of the transitory stance despite all signs to the contrary. It’s as if the critics haven’t looked at a chart recently. But nevermind, the inflation narrative is a huge bonus for bitcoin in the eyes of investors, while at the same time, the deflationary low growth fundamentals are also great for bitcoin.

CPI comes out today, which we predict will be higher than last month (but still in a slowing trend) and cause even more rabid inflation propaganda benefiting bitcoin.

By comparison, there is little news from Europe and the ECB, or Japan and the BoJ. First for the ECB; it seems as though the ECB is a few months behind the Fed and is still driving home the transitory nature of this recent CPI spike. Mind you, their headline CPI was only 3% in September, where the US’s was 5%. 

The Bank of Japan has even less news to report on. They are stuck with very low inflation. Their headline number is 0.2%, and less food and energy is -0.5%. This is despite promising and actually being irresponsible in the QE and spending department. The BoJ is failing so badly in getting inflation, they have to come out weekly and reaffirm their dedication to being irresponsible and attempting to hit their 2% target.

Next, I asked the audience to answer a question for this episode on twitter. You have to quote the Bitcoin Magazine tweet for the episode and tag me. “If the US is exporting inflation, why are the ECB and BOJ’s inflation rates so much lower than the US’s, especially when they have “printed” more money relative to GDP?” Why is the relationship actually inverse? The more a central bank seems to expand their balance sheet, the lower the inflation, even then the US is supposedly exporting inflation with the highest trade deficit ever. The best answer wins a copy of the Bitcoin Dictionary.

We wrap up the show by discussing bitcoin in the context of what we are seeing out there in macro. How bitcoin is a source of growth for all who adopt it. We touch on many important topics in this last minute rip, like velocity of money, bitcoin vs traditional interest rates, surging energy prices, ESG shooting itself in the foot, and layer two fee dynamics with the base layer.

Thanks for listening. If you found this episode informational, please share and give us a rating on iTunes so others can find the show!

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