“Many find it counterintuitive that the Fed would want to push up inflation… However, inflation that is persistently too low can pose serious risks to the economy.”Fed Chairman, Jerome Powell on Thursday, August 28th, 2020
SOURCES: Board of Governors of the Federal Reserve System (US), Currency in Circulation [CURRCIR], retrieved from FRED, Federal Reserve Bank of St. Louis; Link, September 20, 2020. Chart date range from August 1, 1920 (Observation: 5.222) to August 1, 2020 (Observation: 2,004.572).
Order & Chaos
2020 has been non-stop chaos, and out of chaos comes order.
To summarize this year briefly, so far there has been a CoViD-19 pandemic, lock downs, protests, riots, shootings, and wildfires plus some not so “wild” fires. The markets took a nose dive as the entire country and world was coming to grips with a liquidity crisis with people feeling comfortable only holding cash and its equivalents foreseeing trouble brewing, yet they have since recovered and hit all-time-highs before fading back with worries rising over the passage of additional and much needed fiscal stimulus, not to mention, a second wave of the coronavirus. Also just a quick reminder, this is all coming before one of the most contentious presidential elections in history. As they almost always do in times of tragedy and trouble, governments saw their opportunity to step in and make an effort to “correct” the situation using “temporary” tools and/or powers.
However, nothing productive has happened since they took it as a good time for themselves to augment their own authority while growing their central bank’s balance sheet by just stuffing it full of assets and securities purchased with freshly printed cash from quantitative easing for an “economic recovery.” This is culminating in another overreach that bifurcating the economy into have’s and have-not’s. By effectively injecting newly minted money into the fractional reserve banking system, capital markets as a result went soaring back to all-time-highs not due to any real pickup in business or productive economic activity, but rather due to more financial engineering that actually devalues the fiat currencies underlying their prices that makes it so in theory, “Stocks only go up.” Fed officials project no interest rate increases through 2023 and signal a commitment to provide more support to the economic recovery, which as a result will see high earners and the wealthy being insulated by these policies while those less fortunate middle-class and low-income families of the nation must struggle to navigate an economy stacked against them from the very top.
Considering this month’s announcement from Jerome Powell, the chairman of the Board of Governors of the Federal Reserve, declaring a major policy shift in the central bank’s core mandate saying that the Fed was willing to allow inflation to run “higher” and “hotter” than the previous target rate of 2% annually so they may normalize long-term inflation in order to “support the labor market and broader economy.” It is incredibly two-faced to promote their decision as such because by definition inflation is a general increase in prices and fall in the purchasing power of money, so for the people living paycheck-to-paycheck and/or off of their hard earned life-savings directly see its corrosive and degrading effects on the value of their money most. The overarching message of chairman Powell’s statements basically came to mean two things: the Fed wants to encourage people into spending money and taking more risk by keeping interest rates near zero as well as increase inflation targets to dis-incentivize savers who will see their money’s purchasing power and value degrade and diminish over the coming months, quarters, and years ahead if they let it sit in cold, hard cash.
Low interest rates paired with rising inflation, not to mention historically high unemployment rates, are shaping the macroeconomic landscape of the coming 2020’s that looks reminiscent to the “roaring” 1920’s where many Americans made and lost fortunes playing the nascent stock market prior to the Great Depression.
SOURCES: Board of Governors of the Federal Reserve System (US), M2 Money Stock [M2NS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/M2NS, September 21, 2020. M2 includes a broader set of financial assets held principally by households. M2 consists of M1 plus: (1) savings deposits (which include money market deposit accounts, or MMDAs); (2) small-denomination time deposits (time deposits in amounts of less than $100,000); and (3) balances in retail money market mutual funds (MMMFs). Assets: Total Assets: Total Assets (Less Eliminations from Consolidation): Wednesday Level [WALCL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/WALCL, September 21, 2020.
Fed’s Printer Goes “BRRR”
Bitcoin, on the other hand, while also having a bumpy year is managing to trade higher year-to-date and outperform major stock indexes by simply just chugging along doing what it has kept doing over the past decade.
Last summer it was notable when the chairman was firmly assuaging the investment community that the Fed was determined to meet its inflation target of 2% after a long track record of the Fed missing its target set forth by its own mandates. The major tipping point that bitcoiners foresaw coming this year was the third block reward halving in bitcoin’s history where the algorithm of the core protocol saw its inflation rate get cut in half, making it lower than the Fed’s own 2% target rate for the US Dollar. While it may be in the opinion of the current Federal Reserve leadership that keeping inflation high is both good for the citizens and currency’s well-being, bitcoin is flying in the face of Modern Monetary Theory and Quantitative Easing by limiting its issuance over time with each of the 36 total block reward halvings cutting its inflation rate in half every time until the terminal inflation rate is ultimately zero percent annually once all 21,000,000 bitcoins have been mined and put into circulation.
Now with interest rates next to zero and equities as well as other risk-on assets are seeing their valuations soaring, people looking at their savings earning them nothing and are experiencing a fear of missing out on the tasty returns they are hearing about people making on trading platforms like Robinhood or flipping apartments and houses in the real estate market. So, they are eagerly taking on more risk to earn some interest on their principal or protect themselves against inflation, at the very least, by opting for equities as well as options over and above bonds like the US 10-Year offering about 0.67% that’s considered as the risk-free rate of return because it displays “zero default risk.” The Fed chairman this year has emphatically signaled at conferences and interviews on CNBC that, “We [Board of Governors of the Federal Reserve] are not even thinking about thinking about raising interest rates.” Investing in this 21st century is figuratively and literally entering a Brave New World.
Contrasting with the stock market of the early 2000’s where the yield on a US 10-Year bond was about 6%, investors today are forced into seeking out riskier opportunities to earn the same rate of return since the government is not guaranteeing it. Pairing long-term near zero interest rates with the current markets just off record breaking territory as the United States government approaches debt levels that it has not seen since World War II from CoViD-19 stimulus, shrinking GDP, and declining tax revenues; it would be foolish to not recognize the cavalier behavior that the governments have towards printing money and not take it as a warning that they simply may use their power to simply inflate their monetary bases by creating more fiat currency so they can use it to honor their debt obligations rather than simply not making payment because the urge to create money out of nothing in order to “fix” or “solve” their problems is far too great for themselves to resist (as seen historically).
It is a scenario posing a serious risk for the US Dollar’s livelihood and longevity into the foreseeable future as it may risk losing its status as the world’s reserve currency.
Fight Inflation, Not the Fed
The Fed is now the world’s largest investor by owning 22,913 different securities, valued at about $4.8 Trillion, in just a single branch at the Federal Reserve Bank of New York!
Since its inception in 1913, the Federal Reserve bank has been shrouded in mystery and often is the subject of conspiracy theories as well as opinions that are deemed controversial by the general public (mostly for the number of previous POTUS’s speaking out against the centralized banking system) due to its secrecy plus its private elite shareholders. It was meant to serve as an institution to maximize employment and stabilize the value of the currency by managing its issuance and total supply, but money back then was backed by gold or at least pegged to its value in a predetermined amount or rate in the yellow metal whereas fiat currencies today are backed by nothing other than the “full faith and credit” of the government of the United States of America. Some would argue that the dollar is given its value through coercion and violence or backed by oil.
From the time that the central bank of the United States was written into existence by the passage of the Federal Reserve Act by congress to establish economic stability trusting them to oversee monetary policy, it has been the focus of the Federal Reserve to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Although these objectives may sound idealistic, the means of their execution has not been so successful throughout history as there are many exhibits of negligence regarding the adverse effects and negative outcomes stemming from the Federal Reserve’s monetary policies that seem to have benefited the wealthy disproportionately to those in the tax brackets below them. Obstacles such as World War I, the Great Depression, World War II, and the Great Recession has slowly over time distanced people from real assets and honest value through inflation that they forced on the general population with phony fiat paper and certificates of deposit that are unlimited without any sort cap on their issuance and or real-time oversight in the Digital Age. The road back to real money and value is paved with bitcoin and its auditable, censorship-resistant, decentralized, and immutable proof-of-work blockchain.
In the history of the Federal Reserve system, the value of $1 in the United States has lost nearly 99% of its value. Inflation is the “invisible tax” that the Federal Reserve was tasked with fighting against before reversing their stance only just recently embracing it once again while ignoring the lasting effects that have shown that it is detrimental to the value of money and society as a whole. Bitcoin since has appreciated greater than 99% of its value versus the dollar and has the potential to position itself as the 21st century equivalent of “digital gold.”
The problem though is that the Federal Reserve needs stocks now more than it does bitcoin or gold after examining its balance sheet’s assets, but people need bitcoin more than ever as a hedge against against inflation and politics.
So, it is up to you to buy back your freedom and hold your own bitcoin.
SOURCE: Federal Reserve Bank of Minneapolis, Consumer Price Index [CPI-U]
Math & Science (Bitcoin)
vs. Politics & Violence (Dollars)
The true reward for buying bitcoin is seizing the sword of personal liberty by taking back your God given sovereignty, which will free you from the falling dollar and failing fiat that is under the dominion of the Fed as well as other central banks.
Money has been in a descent since its flight from gold-backing to fiat with a floating value tied to its total supply. Bitcoin seemingly as magical internet money rooted in math and science has experienced a rocket-like ascent from increasing adoption and rising demand for assets with fixed supplies, hence one’s that are scarce. Bitcoin compared to gold and real estate is similar for having a limited quantity, but stands apart from those two due to the influence and power that central banks and governments hold over them showing us historically through 6102 orders for their confiscation or coercion using politics and violence to seize control as well as destroy their free market economies.
By not having any centralized power with the ability to amend the historical record or total supply that can distort value and where it’s placed, bitcoin is the highest expression of capitalism to have ever of existed and a purely free form of honest money that is a literal truth machine honoring the sovereignty of the individuals using it in a free market as a tool to prevent undue inflation as well as loss of purchasing power over time from dilution of fiat currencies’ monetary bases. Having no board of governors or committees that have influence over the current mandates or future policies, Bitcoin is a decentralized and electronic payment network written on open-source code that’s auditable as well as available to anyone in the world with a public database keeping track of all transactions going back so far as the very first one ever. It is the most transparent form of governance and money the world has ever seen.
Bitcoin is the cure to the woes of world of fiat currency with its inflation and crony capitalism instilled by the Federal Reserve causing inequality. It is the best shot at a way to actually fix the economy, mitigate the problem of inflation, and possibly solve many problems plaguing the struggling pension plans as well as social security by adding some exposure to bitcoin just by chance it continues to be the best performing asset over the next decade. It is an opportunity for anybody to buy their own freedom and claim their own sovereignty enabling them to protect their wealth from the corrosive power of inflation as well as help build a new macro economy that is more fair, faster, harder, smarter, and stronger with bitcoin.
Owning some bitcoin is not as radical as it may be to NOT own some bitcoin.
“Yes, but we can win a major battle in the arms race and gain new territory of freedom for several years. Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.Satoshi Nakamoto’s response to being asked “You will not find a solution to political problems in cryptography.”
An investment in any asset or strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. Nothing written above may be considered as an offer or solicitation to purchase or sell securities or other services. The trading and investing ideas and strategies discussed above are not recommendations to buy or sell any security and are not intended to provide any investment advice and/or recommendations of any kind, but are made available solely for educational and informational purposes. Before acting on information from above, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.
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FEDERAL RESERVE BOARD AND FEDERAL OPEN MARKET COMMITTEE
LEAVES RATES UNCHANGED | FED FUNDS = 0 – 0.25%
FED TO MAINTAIN ACCOMMODATIVE STANCE UNTIL INFLATION TARGET ACHIEVED AND AIMS FOR INFLATION ABOVE 2% “FOR SOME TIME”
FED TO PURCHASE ADDITIONAL ASSETS TO SUPPORT ECONOMY STILL REMAINING COMMITTED TO USING FULL RANGE OF TOOLS
ECONOMIC ACTIVITY AND EMPLOYMENT HAVE PICKED UP, AND WEAK DEMAND PAIRED WITH OIL PRICES DOWN ARE SUPPRESSING INFLATION
HALF OF THE ECONOMY DEPENDS ON THE VIRUS AND THE HEALTH CRISIS WILL CONTINUE TO WEIGH ON THE ECONOMY
FED SEEKS 2% INFLATION OVER LONGER RUN
KAPLAN, KASHKARI DISSENT ON STATEMENT
STOCKS RALLY TO SESSION HIGHS DURING STATEMENTS, BUT FADE TO FLAT BY THE CLOSING BELL FOLLOWING POWELL’S PRESS CONFERENCE
BITCOIN RISES ABOVE AND HOLDS NEAR $11,000
ALTCOINS FADING FROM DEFI-PALOOZA
FOMC FED FUNDS RATE FORECAST
2020 – 0.13% (Unchg.)
2021 – 0.13% (Unchg.)
2022 – 0.13% (Unchg.)
2023 – 0.13% (Unchg.)
Long Run – 2.50%
FOMC INFLATION FORECAST
2020 – 1.20% (0.4% Chg.)
2021 – 1.70% (0.1% Chg.)
2022 – 1.80% (0.1% Chg.)
2023 – 2.00% (0.2% Chg.)
Long Run – 2.00%
POWELL: SIGNS OF IMPROVEMENT IN BUSINESS INVESTMENT AND ECONOMIC ACTIVITY HAS PICKED UP FROM DEPRESSED LEVELS
EXPECT UNEMPLOYMENT TO CONTINUE TO DECLINE, FED HAS TAKEN FORCEFUL ACTIONS TO ENSURE RECOVERY
INFLATION RUNNING WELL BELOW 2% LONG-TERM OBJECTIVE, DESPITE SOME HIGHER PRICES FOR SOME CONSUMER GOODS, INFLATION SUBDUED AND FED WILL CONTINUE TO INCREASE ASSET PURCHASES AT CURRENT PACE
POWELL: basically done all we can think of