Super appreciate your updates! You don't leave your followers hanging in the dark, you are honest with what you see, and give objective interpretations, the complete opposite of certain huge onchain ct account!
Ben ... I am so impressed with all your thoughts .... thank you for your work and for sharing all this with us. Your analyzes are like mega espresso for me ... good luck my friend and I wish you blessings in what you do .... Greetings from Poland ... Icarus
Another great article! I just watched a lecture by Dr. Lacy Hunt. What I found interesting is he mentions some of the things you talked about but his graphs show that we have been on a path of deflation since the 1990s mainly due to the public debt that has been added to the economy, continues its path of diminishing returns ($1 of debt added returns now less that 30 cents to GDP). He believes that once our GDP growth rate reverts back and continues its decline heading into next yr, pressure will mount for gov't to try and stimulate the economy by spending more. I believe crypto will help find more long-term value more efficiently which our economy desperately needs, but do wonder how the debt burden may hinder that progress.
$1 of debt added returns now less than $0.30 to GDP. Such a great way to look at the productivity issue.
Which lecture was it?
I really like Ray Dalio's material on the debt supercycle. He thinks we can do a 'beautiful deleveraging' regarding the debt issue you raise. If we don't, that's when wars start.
He thought 2008 was the year the debt supercycle came to an end.. he's saying it might be now.. Not sure. Seems the government isn't done trying to give itself room via interest rates, so might be one more event until he's theory unfolds.
It's interesting to think if web3.0 takes place and we transition to a world more reflective of self- sovereignty, what happens to all the debt? It'll need to get monetized in some manner. Those are pensions, massive funds.. national security risks. And it's so large a bailouts won't do the trick. The too large to fail really impairs future growth since their is a national interest to have these dinosaurs become profitable.
Hi Ben! I comment here because I prefer t continue the comment added by InvestLikeKB that really resonates with my framework right now. Thanks InvestLikeKB for your intervention first.
It's difficult for me to see a much higher UST 30yr. I mean, the UST40yr it's already in a 40 year super cycle downtrend that it's very difficult to stop. I'm with you that DEX, Bitcoin and crypto in general could improve productivity... but productivity is deflationary and deflation means lower yield. Maybe deflation is precisely the fuel for crypto as it was for Tech and Web 1.0 and 2.0... Deflationary events push productivity higher and so they mark the starting point for a renewed business cyle.
I liked the correlation between UST30yr and BTC, it seems to me that in the point of big market reversal BTC gains momentum in the upside or in the downside.
by the way thanks Ben for your great stuff. You put on the table interesting original perspective...
"40 year supercycle" - consider where the macro environment was back then. Interest rates were very high just prior and we've been on a path of cutting rates ever sense with some minor ups and downs.
Agree on your points regarding deflationary concerns. So if we have the renewed business cycle due to AI, self-driving cars, quantum computing, cryptocurrency protocols, etc... yes, many of the more expensive goods will drop in price... but maybe the government continues to print in large part because it needs to raise rates.
Your thinking of deflationary effects due to productivity upticks are yet another variable! Thanks for bringing it up!
De-leveraging will happen through bitcoin. Attempts to take from the haves to the have nots will not be enough to fix the debt cycle. As Dalio said "we can have a beautiful de-leveraging" I think fiat has run its course on being able to achieve this. "Its only math" Greg Foss. Greater production is the only way to economic growth. Crypto has a way to fix the production problem. I was standing at a UPS store and just imagined a world where humans would not have to waste precious energy (time) to perform menial tasks. The imperfect production created my humans in every day life because of subjective motives can be eliminated by narratives discussed by Ben in his beautiful post. Advances in Technology (and money for individuals) only gives the collective group more spare time. As spare time is produced individuals are allowed to think outside of self preservation and continue to evolve beyond what was once the collective "self belief".. You can see this over the course of history through the neolithic revolution, printing press, internet and of course... crypto... De-leveraging through BTC will force the haves to part with portions of their wealth in order for the collective group to be able to gain this "spare time" through upping the quality of life of everyone.
Long inflation is an overcrowded trade. A number of keen market observers are calling for deflation. Lumber rolled over a few weeks ago and now it's base metals. When oil rolls over you can call it a wrap for inflation.
Now wage inflation or stagflation? Very possible and it'll be a net negative for just about everyone and everything.
Hi Ben fan of you and your teams public work, would like to offer a pointer to an alternative *data driven* explanation for the 30yr yield which will challenge base assumptions. In short "higher rates = slow economic growth" is a very stretched narrative not supported by the historic data, mostly spread by economists that do study economic history nor understand the bond market. "High interest rates occur during times of economic growth which then kills economic growth" is a poor circular argument not backed by longer term data.
An introduction to a different data driven method that reaches completely different conclusion that more closely matches what we actually see happening in world markets can be found on Emil Kalinowski's youtube playlist "Making Sense of Our Monetary Disorder", part of the Eurodollar University series with Jeff Snider (there are other podcast sources but Emil's playlist is the cleanest). At around 84 episodes now this will give a good overview and shake the assumptions made in your article to the core, all backed by hard data if you take the time to dig. Highly recommended.
Thanks again for all your public work, very informative!
84 episodes? If there was only one episode to watch, what would it be?
One thing to keep in mind is the comparison I use is the 1930s / 1940s when the balance sheet expanded last time... Then rates had to go sky high to combat inflationary pressures while the government invested in infrastructure programs to improve productivity.
Agree it might be a one size fits all approach to thinking here, but it's a framework we can use to assess future events as they arise... this way we can look back at this framework and decide if this holds true still, or we need to tweak.
Yes sorry about that it is a lot but then there is a lot to unlearn and obscure supporting data series to present and interpret such as the TIC data. You could catch the latest only and/or head over to Jeff Snider's Alhambra Partners website and just read the latest blog or two, try to backfill the knowledge piecemeal over time that way but it challenges so many base assumptions it may be hard to know what your looking at at first. Many in the crypto community (and out) still think the feds balance sheet bank reserves are inflationary when the data is quite conclusive: Bank reserves are not effective money, are not in themselves inflationary. Expectation management if most believe trillions (quadrillions in Japans case) in balance sheet interbank-tokens-not-money is inflationary because that is how it is reported in MSM, then they as distributed market participants will act in inflationary ways... and that is all a "central" bank has got. Summed up in one picture titled "Perception vs Reality" found on "21.2 Why is Credit so tight in the US if Fed is Printing?" episode of the Eurodollar University series. Monetising the debt through the Treasury surely that will be inflationary then all those huge numbers!? No the data is pretty clear here as well: The worldwide Eurodollar system is vast in size far beyond the US or EU economies and operates in the shadows we can only see part of what is going on indirectly and all that so called "stimulus" (=stipends) and infrastructure plans does not even come close to the scale of the deflationary feedback system and hole blown in the Eurodollar system since 2007. To cut this short: the 30yr bond is following the coincident leading indicators for forward growth which the bond market is sniffing out despite the "inflationary inferno" narrative. These indicators are rolling over but not yet broken trend. See Lakshman Achuthan of Economic Cycle Research Institute twitter feed and their weekly leading index for one of the more conservative sources here. The question is whether the reflation trade can another leg higher or this is it for the trend - and to discern that you have to know what is going on with collateral markets... something many mainstream economist including those that the Fed have demonstrated themselves to be all but blind to (see series for data backing this up). Also search for "reflation collateral" on alhambrapartners dot com or within those 84 videos for more data than you can sink your teeth into. Unless something changes soon leading indicators rolling over and increasing the probability that we could be right back in deflation at the earliest by Aug/Sept this year, dollar up crypto down. We shall see.
Hey Keith, Jeff Snider, Lacy Hunt and a few of the other economic analysts I like to follow to get a sense of the range of voices on the present circumstances, tend to agree on the deflationary factors with some differences here and there. I've fallen behind on Jeff's work but do you know where Jeff stands on CBDC's? Lacy believes that if they are able to change the law to approve CBDCs next year and effectively cut out the banks, then we would be on the path to hyperinflation in a hurry. A risk factor to price that I can only see growing over the rest of the year and next year.
Here is one of Jeff's latest takes on the fundamental problems with CBDCs, may required assumed knowledge on the inertness of bank reserves to fully appreciate. There have also been a few "Crypto and Coffee"(?) interviews where I think they say they discussed it as well.
Inflation seems like the most crowded trade at the moment. Reading InvestLikeKBs comment about Tech being deflationary, imagining crypto could be the central planners solution for the inflationary pressures arisen from money printing to combat the slowing velocity of money.
Since we're facing the next wave and possible lockdowns, the money printing will likely go on for another while.
Love the exchange of ideas in the comment section!
After digging a little bit more into the money velocity and deflation theme I come to the conclusion that central bank tech aka CBDCs are highly inflationary under certain circumstances.
Since CBDCs are basically programmable money (negative interest rates etc) they can speed up the velocity (V) (changing hands of dollars in a certain period of time, typically 1 year) when the economic output (Q) stays the same and printing of money (M) continues.
On a blog from 2014, the Federal Reserve Bank of St. Louis stated, "If for some reason the money velocity declines rapidly during an expansionary monetary policy period, it can offset the increase in money supply and even lead to deflation instead of inflation."
This is exactly what we're seeing since a few years. But since economic slowdown is reducing the output we're actually seeing a bit more inflation.
This is why I think the FED desperately needs to ramp up velocity via CBDCs.
Since 'reopening' is happening, velocity of money is speeding up is the theory. "Velocity of M2 Money Stock" is what you can view. My guess is Q2 figures will be higher than most recent quarters.
Basically, once "Personal Saving Rate" (another FRED stat) starts to move, then we will actually witness more money in circulation and therefore, more dollars fighting over same amount of goods -> inflation.
So the idea with programmable money is to get users to not hoard cash as seen in "Personal Saving Rate", but to move the cash out into the economy -> higher Velocity.
Super appreciate your updates! You don't leave your followers hanging in the dark, you are honest with what you see, and give objective interpretations, the complete opposite of certain huge onchain ct account!
Ben ... I am so impressed with all your thoughts .... thank you for your work and for sharing all this with us. Your analyzes are like mega espresso for me ... good luck my friend and I wish you blessings in what you do .... Greetings from Poland ... Icarus
Another great article! I just watched a lecture by Dr. Lacy Hunt. What I found interesting is he mentions some of the things you talked about but his graphs show that we have been on a path of deflation since the 1990s mainly due to the public debt that has been added to the economy, continues its path of diminishing returns ($1 of debt added returns now less that 30 cents to GDP). He believes that once our GDP growth rate reverts back and continues its decline heading into next yr, pressure will mount for gov't to try and stimulate the economy by spending more. I believe crypto will help find more long-term value more efficiently which our economy desperately needs, but do wonder how the debt burden may hinder that progress.
$1 of debt added returns now less than $0.30 to GDP. Such a great way to look at the productivity issue.
Which lecture was it?
I really like Ray Dalio's material on the debt supercycle. He thinks we can do a 'beautiful deleveraging' regarding the debt issue you raise. If we don't, that's when wars start.
He thought 2008 was the year the debt supercycle came to an end.. he's saying it might be now.. Not sure. Seems the government isn't done trying to give itself room via interest rates, so might be one more event until he's theory unfolds.
It's interesting to think if web3.0 takes place and we transition to a world more reflective of self- sovereignty, what happens to all the debt? It'll need to get monetized in some manner. Those are pensions, massive funds.. national security risks. And it's so large a bailouts won't do the trick. The too large to fail really impairs future growth since their is a national interest to have these dinosaurs become profitable.
Hi Ben! I comment here because I prefer t continue the comment added by InvestLikeKB that really resonates with my framework right now. Thanks InvestLikeKB for your intervention first.
It's difficult for me to see a much higher UST 30yr. I mean, the UST40yr it's already in a 40 year super cycle downtrend that it's very difficult to stop. I'm with you that DEX, Bitcoin and crypto in general could improve productivity... but productivity is deflationary and deflation means lower yield. Maybe deflation is precisely the fuel for crypto as it was for Tech and Web 1.0 and 2.0... Deflationary events push productivity higher and so they mark the starting point for a renewed business cyle.
I liked the correlation between UST30yr and BTC, it seems to me that in the point of big market reversal BTC gains momentum in the upside or in the downside.
by the way thanks Ben for your great stuff. You put on the table interesting original perspective...
"40 year supercycle" - consider where the macro environment was back then. Interest rates were very high just prior and we've been on a path of cutting rates ever sense with some minor ups and downs.
Agree on your points regarding deflationary concerns. So if we have the renewed business cycle due to AI, self-driving cars, quantum computing, cryptocurrency protocols, etc... yes, many of the more expensive goods will drop in price... but maybe the government continues to print in large part because it needs to raise rates.
Your thinking of deflationary effects due to productivity upticks are yet another variable! Thanks for bringing it up!
Good stuff, Ben! I'll have to read it twice to absorb it :)
Sorry about that. Tried to break it down as easily as possible. Dense material there.
De-leveraging will happen through bitcoin. Attempts to take from the haves to the have nots will not be enough to fix the debt cycle. As Dalio said "we can have a beautiful de-leveraging" I think fiat has run its course on being able to achieve this. "Its only math" Greg Foss. Greater production is the only way to economic growth. Crypto has a way to fix the production problem. I was standing at a UPS store and just imagined a world where humans would not have to waste precious energy (time) to perform menial tasks. The imperfect production created my humans in every day life because of subjective motives can be eliminated by narratives discussed by Ben in his beautiful post. Advances in Technology (and money for individuals) only gives the collective group more spare time. As spare time is produced individuals are allowed to think outside of self preservation and continue to evolve beyond what was once the collective "self belief".. You can see this over the course of history through the neolithic revolution, printing press, internet and of course... crypto... De-leveraging through BTC will force the haves to part with portions of their wealth in order for the collective group to be able to gain this "spare time" through upping the quality of life of everyone.
Long inflation is an overcrowded trade. A number of keen market observers are calling for deflation. Lumber rolled over a few weeks ago and now it's base metals. When oil rolls over you can call it a wrap for inflation.
Now wage inflation or stagflation? Very possible and it'll be a net negative for just about everyone and everything.
Discl: sold all my INF shares today
Hi Ben fan of you and your teams public work, would like to offer a pointer to an alternative *data driven* explanation for the 30yr yield which will challenge base assumptions. In short "higher rates = slow economic growth" is a very stretched narrative not supported by the historic data, mostly spread by economists that do study economic history nor understand the bond market. "High interest rates occur during times of economic growth which then kills economic growth" is a poor circular argument not backed by longer term data.
An introduction to a different data driven method that reaches completely different conclusion that more closely matches what we actually see happening in world markets can be found on Emil Kalinowski's youtube playlist "Making Sense of Our Monetary Disorder", part of the Eurodollar University series with Jeff Snider (there are other podcast sources but Emil's playlist is the cleanest). At around 84 episodes now this will give a good overview and shake the assumptions made in your article to the core, all backed by hard data if you take the time to dig. Highly recommended.
Thanks again for all your public work, very informative!
84 episodes? If there was only one episode to watch, what would it be?
One thing to keep in mind is the comparison I use is the 1930s / 1940s when the balance sheet expanded last time... Then rates had to go sky high to combat inflationary pressures while the government invested in infrastructure programs to improve productivity.
Agree it might be a one size fits all approach to thinking here, but it's a framework we can use to assess future events as they arise... this way we can look back at this framework and decide if this holds true still, or we need to tweak.
Yes sorry about that it is a lot but then there is a lot to unlearn and obscure supporting data series to present and interpret such as the TIC data. You could catch the latest only and/or head over to Jeff Snider's Alhambra Partners website and just read the latest blog or two, try to backfill the knowledge piecemeal over time that way but it challenges so many base assumptions it may be hard to know what your looking at at first. Many in the crypto community (and out) still think the feds balance sheet bank reserves are inflationary when the data is quite conclusive: Bank reserves are not effective money, are not in themselves inflationary. Expectation management if most believe trillions (quadrillions in Japans case) in balance sheet interbank-tokens-not-money is inflationary because that is how it is reported in MSM, then they as distributed market participants will act in inflationary ways... and that is all a "central" bank has got. Summed up in one picture titled "Perception vs Reality" found on "21.2 Why is Credit so tight in the US if Fed is Printing?" episode of the Eurodollar University series. Monetising the debt through the Treasury surely that will be inflationary then all those huge numbers!? No the data is pretty clear here as well: The worldwide Eurodollar system is vast in size far beyond the US or EU economies and operates in the shadows we can only see part of what is going on indirectly and all that so called "stimulus" (=stipends) and infrastructure plans does not even come close to the scale of the deflationary feedback system and hole blown in the Eurodollar system since 2007. To cut this short: the 30yr bond is following the coincident leading indicators for forward growth which the bond market is sniffing out despite the "inflationary inferno" narrative. These indicators are rolling over but not yet broken trend. See Lakshman Achuthan of Economic Cycle Research Institute twitter feed and their weekly leading index for one of the more conservative sources here. The question is whether the reflation trade can another leg higher or this is it for the trend - and to discern that you have to know what is going on with collateral markets... something many mainstream economist including those that the Fed have demonstrated themselves to be all but blind to (see series for data backing this up). Also search for "reflation collateral" on alhambrapartners dot com or within those 84 videos for more data than you can sink your teeth into. Unless something changes soon leading indicators rolling over and increasing the probability that we could be right back in deflation at the earliest by Aug/Sept this year, dollar up crypto down. We shall see.
Hey Keith, Jeff Snider, Lacy Hunt and a few of the other economic analysts I like to follow to get a sense of the range of voices on the present circumstances, tend to agree on the deflationary factors with some differences here and there. I've fallen behind on Jeff's work but do you know where Jeff stands on CBDC's? Lacy believes that if they are able to change the law to approve CBDCs next year and effectively cut out the banks, then we would be on the path to hyperinflation in a hurry. A risk factor to price that I can only see growing over the rest of the year and next year.
Here is one of Jeff's latest takes on the fundamental problems with CBDCs, may required assumed knowledge on the inertness of bank reserves to fully appreciate. There have also been a few "Crypto and Coffee"(?) interviews where I think they say they discussed it as well.
https://www.realclearmarkets.com/articles/2021/05/14/a_half-baked_attempt_to_pull_banking_back_in_before_its_too_late_777144.html
Thank you for much signal in all that daily noise one gets caught up quickly.
What do you make of yesterdays statement by the BofA: "only market crash will prevent global central banks tightening next 6 months." ?
Sounds like BoA is worried about inflation. I did not read their comments so I'm just taking a bit of a guess here.
Big issues comes about once a lot of gov't programs from COVID come to an end, people go back to work and velocity of money ramps up.
Inflation seems like the most crowded trade at the moment. Reading InvestLikeKBs comment about Tech being deflationary, imagining crypto could be the central planners solution for the inflationary pressures arisen from money printing to combat the slowing velocity of money.
Since we're facing the next wave and possible lockdowns, the money printing will likely go on for another while.
Love the exchange of ideas in the comment section!
Likewise. The exchange of ideas is my favorite part of publishing. Creating a conversation so a lot of our very own questions come closer to an answer
After digging a little bit more into the money velocity and deflation theme I come to the conclusion that central bank tech aka CBDCs are highly inflationary under certain circumstances.
Since CBDCs are basically programmable money (negative interest rates etc) they can speed up the velocity (V) (changing hands of dollars in a certain period of time, typically 1 year) when the economic output (Q) stays the same and printing of money (M) continues.
(Base assumption: MV=PQ; Money velocity = Price adjusted economic output)
On a blog from 2014, the Federal Reserve Bank of St. Louis stated, "If for some reason the money velocity declines rapidly during an expansionary monetary policy period, it can offset the increase in money supply and even lead to deflation instead of inflation."
This is exactly what we're seeing since a few years. But since economic slowdown is reducing the output we're actually seeing a bit more inflation.
This is why I think the FED desperately needs to ramp up velocity via CBDCs.
Since 'reopening' is happening, velocity of money is speeding up is the theory. "Velocity of M2 Money Stock" is what you can view. My guess is Q2 figures will be higher than most recent quarters.
Basically, once "Personal Saving Rate" (another FRED stat) starts to move, then we will actually witness more money in circulation and therefore, more dollars fighting over same amount of goods -> inflation.
So the idea with programmable money is to get users to not hoard cash as seen in "Personal Saving Rate", but to move the cash out into the economy -> higher Velocity.
Yes, completely agree