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Fed Watch - Bitcoin and Macro


Apr 27, 2022

In this episode of the Fed Watch podcast, CK and I discuss our thoughts on the “IMF debate” that took place on April 21, 2022 between Fed Chair Jerome Powell, ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva, Indonesia Finance Minister Sri Mulyani Indrawati, and Barbados Prime Minister Mia Mottley.

Fed Watch is a podcast for people interested in central bank current events and how Bitcoin will integrate or replace aspects of the aging financial system. To understand how bitcoin will become global money, we must first understand what’s happening now.

Takeaways

First, I must preface my write up by saying this was not a debate at all. These financial bureaucrats were simply using this forum to get their message across to the people of the world. They all basically agreed on the major points, that being, inflation is high and we can blame Russia for much of the problem due to supply shocks.

The major theme from Lagarde and Powell was, to get CPI back into their acceptable range of 2%, they must rein in demand in their respective economies, since the driving force of the rise is due to a supply shock.

The medium is the message as it goes. Although this event is meant to portray a united front for the global financial system, we pick out several very important places where Powell and Lagarde disagree once you dig a little deeper. 

ECB and Fed on Inflation

Christine Lagarde breaks down the components of the high CPI level in Europe by saying 50% of it is due to energy prices, another significant portion is due to food prices, and only a small fraction of CPI, 2.9% to be exact, is what is called “core CPI”. I know that most people in the bitcoin space don’t accept the importance of core CPI and think it is a scam to hide actual inflation. But in this case, Lagarde has a point. Most of Europe’s price increases are due to a self-imposed supply shock. 

Chair Powell talks about CPI in the US differently. He acknowledges the supply shock aspect, but his main view of the supply side of things is that the US economy is red hot and very tight. He mentions the labor market multiple times, claiming supply cannot keep up with rising demand, as opposed to Europe where supply is being cut relative to demand.

CK and I react to these two viewpoints of the central bank chiefs.

The Sunset of Globalization

Another very important exchange from the IMF roundtable we emphasize is when the moderator asks about the decline in globalization. Powell says that it is quite possible that we see a reversal in globalization, while Lagarde “pleads Europe’s case” for a mere revisiting of the terms of trade.

I think this exposes a fundamental difference between these two economies, and in the podcast we take time to detail this out more in depth. Suffice it to say in this write up, the US is more self-sufficient and ultimately less concerned about the fate of globalization than Europe. Europe is beholden to the global economy for customers and for energy inputs. 

Bitcoin’s Answer to Lagarde and Powell

Being a bitcoin show, CK and I take a lot of time discussing just how bitcoin fixes these problems of the financial system that Powell and Lagarde speak about.

Instead of relying on central planners (who admit to following the market anyway), a bitcoin system will take much of the complexity out of the process. We will not have the false impression that the expert class knows best and people will be unencumbered by a narrative of inadequacy and inefficiency.

That does it for this week. Thanks to the watchers and listeners. If you enjoy this content please SUBSCRIBE, and REVIEW on iTunes, and SHARE!

Written by Ansel Lindner

Economist, bitcoin specialist, and author of the Bitcoin Dictionary and the free weekly Bitcoin Fundamentals Report. Find more from Ansel at the bitcoinandmarkets.com