Late Stage Fiat
You know you're living through Late Stage Fiat when a banking crisis is bullish.
Pure hysteria. We are at the stage in the Fiat Ponzi where a potential banking crisis is bullish for assets.
Preventing a banking crisis calls for Fed intervention, which means more easy money on the way and more injections of liquidity. Can you say pivot?
The Fed’s balance sheet is only going one-way: up and the to right. Any temporary change in that is simply jaw-boning from Jerome Powell and central bankers. QT can’t last for a sustained period because… well, math.
In fact, the last year of QT was effectively erased in the last week.
The current financial system requires a perpetual expansion in credit or else the whole thing comes crashing down. That is why I have said that understanding *why* the Fed must pivot is more valuable than speculating on *when* it will pivot.
The shark must keep swimming or else it dies. A heroin addict needs more heroin or else he dies. A debt-based system needs more easy money or else it dies… and it’s about to get it.
Bag holders are cheering on news of the pivot but it’s kind of a disaster. Govt-approved-and-manipulated CPI Inflation is still running hot at 6% — having to turn the QE spigot back on with CPI at historic highs means elevated levels of inflation for longer. Get ready for the propaganda machine to normalize 4-5% as the new 2%.
When presented with the options of a) do not intervene and allow a deflationary economic collapse or b) kick the can down the road and print money to delay it, central banks will always choose the latter. They face far too much political pressure to “do nothing” and allow the former, reasonably so.
I would do the same thing if I was in Jerome Powell’s shoes. I think many of us would. The circumstances we find ourselves in today is a result of several decades worth of borrowing from the future — and looking for a solution to the existing system from within the existing system is insanity, almost by definition.
The creator of the Keynesian hysteria, John Maynard Keynes, was once asked about the long-term implications of a centrally-planned, debt-based economic system. He responded, “In the long-run, we are all dead.” He’s right. But I’m alive today, and so are you.
So, what to do… what to do.
Knowing that over the long-term, the Federal Reserve must continue to expand its balance sheet via money printing, and that it will always choose to do so instead of allowing the house-of-cards to collapse, what are the logical next steps for law-abiding citizens to do who are interested in preserving their unspent economic output?
Personally, I would be interested in storing purchasing power in assets that cannot be arbitrarily created for virtually no cost by a central authority.
Ideally, I would like the asset to have an absolutely fixed supply, minimal counterparty risk (if any), no central issuer, a programmatic and unchangeable monetary policy, be portable, durable, and for it to exist outside of the existing system. The ability to take self-custody of it would also be nice.
I’m obviously tongue-in-cheek describing hard assets like gold and bitcoin here. The former being a dumb rock that is vulnerable to centralization over time (as we have seen over and over again throughout history) and the latter being the engineering solution to the Fiat Ponzi that will inevitably collapse.
To be clear, I am not rooting for this implosion, especially not a rapid one.
Fast forward a hundred years. The world on a Bitcoin standard is a far better world than one on another 100 years of a can-kicking fiat standard. Without question.
The variable of concern is the rate at which such a transition takes place.
In my opinion, no one should be cheering for this to be a rapid transition. That would result in absolute societal chaos — and nobody should want that, despite what it means for the purchasing power of their funny money internet coins.
That is why I hope for as many people to reach for the lifeboat before they think they need it.
But risk happens fast — and so does hyperinflation.