Bitcoin and macroeconomics, IMF warns of collapse
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In this episode of Bitcoin Magazine‘Fed Watch’ podcast, Christian Keroles and I sat down for our very first live broadcast as part of the new Bitcoin Magazine live show. Going forward, we’ll be recording live around 2:00 p.m. EST every Tuesday. Join us and as we become more familiar we may be able to answer questions live from the chat.
This week, we took a quick tour of macroeconomics. First, we listened to and responded to three excerpts from Federal Reserve Chairman Jerome Powell’s testimony to Congress where he removed the term “transitional”. Next, we did a quick read of an IMF blog post on the debt crisis in low income countries. Third, we discussed the reduction in its reserve requirement ratio (RRR) by 50 basis points (bps) and the default of Evergrande by China’s central bank, the PBoC. Finally, we took a look at bitcoin and covered several of our current theses on macro and geopolitics, why we are bullish on the US and bearish on Europe. It was a huge live show, I think you all are going to really enjoy this one.
Fed’s Powell retires “transient”
We had three Powell clips that we listened to. Each gave us the opportunity to discuss different aspects of the Fed, its monetary policy, and perhaps to unveil its inner thoughts. So many Fed experts and analysts don’t even look at the actual testimony. They are pissed off by the headlines or a reporter’s take on what Powell said. The general public, who are concerned about their money, tend to think of these people as bad. We think central bankers are misguided and biased, but we actually looked at the testimonials to form our own opinion and took you with us.
Our discussion included parts of transient or not, a global low interest rate environment, issues of forecasting inflation based on non-linear side effects of supply and whether or not the reduction will be accelerated.
IMF sees economic collapse in low-income countries
In a blog post Since December 2, IMF President Kristalina Georgieva has written: “We could see an economic collapse in some countries unless the G20 creditors agree to speed up debt restructuring and suspend service. debt while restructurings are being negotiated.
It is very disturbing. These countries have had 12 to 18 months of suspension on their international loans, and yet they still cannot pay them? If they can’t pay them after a year of postponement, what makes anyone think the restructuring will help?
These countries are in great difficulty, and this corresponds to our thesis that emerging markets have benefited over the past 50 years from an easy credit environment. Now that the easy credit environment is over, they will have to face extreme burdens in continuing their previous level of economic activity.
China cuts RRR for banks and Evergrande default
Our last stop was China. We covered the Fed, we brought Europe into our discussions, and then we covered the People’s Bank of China. This week he announced a 50 basis points cut to its reserve requirement ratio (RRR), freeing up 1.2 trillion yen in the hope that banks will lend.
This follows a similar cut earlier this year in July, which would have freed up 1 trillion yen. It mustn’t have had the desired effect, or the economy is much worse than expected, because why should she start over, and / or why would she expect better results this time around?
If banks don’t lend, it’s not because they don’t have reserves. There have been empirical studies regarding RRR – banks lend first, then go out and find the necessary reserves. Giving banks room in the RRR doesn’t make them want to go out and lend.
It also happens just as Evergrande faces a fault offshore debt, if it has not yet defaulted at the time of writing. Reports indicate that Evergrande will default on $ 19 billion in international bonds, and their real estate industry’s second-largest international debtor, Kaisa, has also defaulted on $ 12 billion in offshore debt. The contagion continues.
Finally, we compared and contrasted sentiment in recent statements from the PBoC and the Fed. The global financial reality is very similar for these two countries, indeed they are very closely intertwined, but where Powell describes the story that the economy is doing very well and that there is a danger of growth and inflation. excessive, the PBoC says the central bank must inject liquidity into the economy in advance to prepare for potential challenges.
The contrast is apparent. The Fed provides positive forward guidance and the PBoC is negative.
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