This time, it will cause serious damage to the United States again.
From 2008 to the present, America’s Great Convergence and the local cycle in the Middle Ages
Facing another economic collapse due to tightening of currency, the American Association of Simplicity defaulted and devalued again. This time, the Federal Reserve did not prohibit private ownership of gold, and then devalued the dollar relative to gold, but decided to print money and purchase government bonds, euphemistically called quantitative easing. In both cases, the amount of credit based on the US dollar expanded rapidly to “save” the economy.
The proxy war between the main political groups has erupted again. A major turning point was the 2008 Russian invasion of Georgia, in response to NATO’s intention to incorporate Georgia into the organization. For the Russian elite led by President Putin, preventing the advance and encirclement of NATO with nuclear weapons to Russia’s homeland has always been a top priority, both past and present.
Currently, fierce proxy wars have erupted in Ukraine and the Levant (Israel, Jordan, Syria, and Lebanon) between the West (America and its satellites) and the Eurasian continent (Russia, China, and Iran). Any of these conflicts could escalate into a nuclear war between the two sides. In response to the seemingly unstoppable war process, countries are turning inward to ensure that all aspects of their national economies are prepared to support the war.
In this analysis, this means that savers will be required to provide funds for the country’s wartime spending. They will be suppressed economically. The banking system will allocate most of the credit according to the country’s instructions to achieve certain political goals.
The American Association of Simplicity has defaulted on the US dollar again to prevent a deflationary depression similar to the Great Depression of 1930. Subsequently, the United States set up trade protectionism barriers similar to those of 1930 to 1940. All nation-states are looking out for themselves, which can only mean severe inflation alongside financial repression.
This time, as the Federal Reserve devalues the dollar, capital can freely leave the system. The problem is that, at the start of the current local cycle, Bitcoin offers another form of stateless currency. The main difference between Bitcoin and gold is that, as Lynn Alden put it, Bitcoin’s ledger is maintained through encrypted blockchains and the currency flows at the speed of light. In contrast, gold’s ledger is maintained by nature and its movement speed is only comparable to the actual transfer of gold by humans. Compared to digital fiat currencies that move at the speed of light but can be printed in unlimited quantities by the government, Bitcoin is superior, while gold is inferior. That’s why, from 2009 to the present, Bitcoin has to some extent overshadowed gold.
Bitcoin’s performance has far surpassed gold, to the extent that you can’t see the difference in returns between gold and stocks on this chart. Therefore, gold’s performance has lagged stocks by nearly 300%.
The end of quantitative easing
While I think my description and background of the past 100 years of financial history is incredible, it does not eliminate people’s concerns about the end of the current bull market. We know that we are in a period of inflation, and Bitcoin has done what it should: perform better than stocks and currency devaluation. However, timing is everything. If you bought Bitcoin at recent historical highs, you might feel like a beta version of a green hat, as you are inferring past results to an uncertain future. Nevertheless, if we believe that inflation will continue, and war (whether cold, hot, or proxy) is forthcoming, what insights does the past have for the future?
Governments have long suppressed domestic savers to fund wars and past winners of cycles and maintain system stability. In this modern nation-state and large integrated commercial banking system, the primary way for the government to provide funds to itself and key industries is to control how banks allocate credit.
The problem with quantitative easing is that the market will put free money and credit into businesses that do not produce the actual products needed for a wartime economy. The American Association of Simplicity is the best example of this phenomenon. Volcker ushered in the era of omnipotent central banks. Central bankers create bank reserves by buying bonds, thus lowering costs and increasing credit limits.
In the private capital market, credit allocation is done to maximize shareholder returns. The simplest way to increase stock prices is by reducing float through buybacks. Companies that can obtain cheap credit will borrow money to buy back stocks. They will not borrow money to increase capacity or improve technology. Improving business to hope for more revenue is challenging and is not guaranteed to stimulate stock prices. But mathematically, reducing float can increase stock prices. Since 2008, many large market capitalization companies that have obtained large amounts of cheap credit have done so.
Another easily achieved goal is to increase profit margins. Therefore, companies have not used stock prices to build new capacity or invest in better technology, but to lower labor costs by shifting jobs to China and other low-cost countries. The U.S. manufacturing industry is so fragile that it cannot produce enough ammunition to counter Russia’s fighting in Ukraine. Furthermore, China has a clear advantage in manufacturing goods, to the point that the U.S. Department of Defense’s supply chain is filled with key components produced by Chinese companies. Most of these Chinese companies are state-owned enterprises. Quantitative easing (QE) combined with shareholder-centric capitalism has made the U.S. military “giant” dependent on the country’s “strategic competitor” (their words, not mine), China. It’s ironic!
The way the American Association of Simplicity and the Western collective allocate credit will resemble China, Japan, and South Korea. Either the country directly instructs banks to lend to this or that industry/company, or the banks are forced to purchase government bonds at rates below market, so that the country can provide subsidies and tax incentives to “appropriate” companies. In either case, the return on capital or savings will be lower than nominal growth and inflation. Assuming capital controls are not implemented, the only way out is to purchase value storage outside the system, such as Bitcoin.
For those who are obsessed with observing changes in the balance sheets of major central banks and believe that the rate of credit growth is not enough to drive up the price of cryptocurrencies, you must now be obsessed with observing the total amount of credit created by commercial banks. Banks achieve this by lending to non-financial businesses. Fiscal deficits also generate credit, as deficits must be funded by borrowing on the sovereign debt market, and banks will dutifully buy this debt.
In short, in past cycles, we monitored the size of the central bank’s balance sheet. In this current cycle, we must monitor the total amount of fiscal deficits and non-financial bank credit.
Trading strategy
Why am I confident that Bitcoin will regain its magic? Why am I confident that we are in a new cycle of localization and national prioritization of currency inflation?
Look at this information:
According to a federal agency’s forecast, the U.S. budget deficit is expected to soar to $19.15 trillion in the 2024 fiscal year, exceeding last year’s $16.95 trillion, and reaching the highest level since the era of COVID-19, which the agency attributes to a 27% increase in spending over earlier predictions.
For those worried that “Slow” Biden will not spend more to keep the economy running before the election, this is the answer.
The Atlanta Fed predicts a staggering +2.7% actual GDP growth in the third quarter of 2024.
For those concerned that America will fall into a recession, it is extremely difficult mathematically to experience a recession when the government spends $20 trillion beyond tax revenue. This is equivalent to 7.3% of GDP in 2023. For context, U.S. GDP fell by 0.1% in 2008 and 2.5% during the 2009 global financial crisis. Even if there is another global financial crisis similar to the last one this year, the decline in private economic growth will still not exceed the amount of government spending. There will be no recession. This does not mean that a large number of ordinary people will not fall into severe financial difficulties, but America will continue to move forward.
I mention this because I believe that fiscal and monetary conditions are loose and will continue to be loose, so holding cryptocurrencies is the best way to preserve value. I am confident that today’s situation is similar to the 1930s to 1970s, which means that, since I can still freely transfer from fiat to cryptocurrencies, I should do so, as devaluation from the expansion and centralized credit allocation of the banking system is imminent.
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