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Fed Watch - Bitcoin and Macro

Dec 8, 2021

In this episode of Bitcoin Magazine’s “Fed Watch'' podcast, Christian Keroles and I sit down for our first ever livestream as part of the new Bitcoin Magazine livestream. Going forward, we will be recording live at approximately 2pm eastern time every Tuesday. Come join us and as we get a hang of it, we might be able to answer live questions from the chat. 


This week we go on a whirlwind tour of macro. First, we listen and respond to three clips of Fed Chairman Jerome Powell’s testimony in front of Congress where he retired the term “transitory”. Next, we do a quick reading from an IMF blog post on the debt crisis in low-income countries. Third, we discuss the central bank of China, the PBoC, cutting their reserve requirement ratio (RRR) by 50 bps and the default of Evergrande. Lastly, we riff on bitcoin and cover several of our ongoing thesis about macro and geopolitics, why we are bullish on the US and bearish on Europe. Huge live show, I think you all will really enjoy this one.

Fed’s Powell Retires “Transitory”

We have three clips of Powell that we listen to. Each allows us to discuss different aspects of the Fed, their monetary policy, and perhaps tease out their inner thoughts. So many pundits and analysts of the Fed don’t even watch the actual testimony. They get riled up by headlines or some journalist’s take of what Powell said. The general, sound-money oriented public has a bias of thinking these people are evil. We think central bankers are misguided and partial, but we actually watch the testimony to form our own opinions, and take you along with us.


Our discussion includes parts on transitory or not, a global low interest rate environment, inflation forecasting problems based on non-linear supply side effects, and whether the taper will be accelerated or not.

IMF Sees Economic Collapse in Low-income Countries

In a blog post on December 2nd, IMF President Kristalina Georgieva, says, “We may see economic collapse in some countries unless G20 creditors agree to accelerate debt restructurings and suspend debt service while the restructurings are being negotiated.”


This is very worrying. These countries have had 12-18 months of deferment on their international loans, yet they still cannot pay them? If they are unable to pay them after a year-long deferment, what makes anyone think that restructuring will help? 


These countries are in real trouble, and that fits with our thesis that emerging markets benefitted over the last 50 years of an easy credit environment. Now that the easy credit environment is over, they are going to face extreme burdens in continuing their previous level of economic activity.

China Cuts RRR for Banks and Evergrande Default

Our last stop is China. We covered the Fed, we brought Europe into our discussion, and now we cover the People’s Bank of China. This week they announced a 50 bps cut to their Reserve Requirement Ratio (RRR) freeing up ¥1.2 trillion in the hopes that banks will go out and lend.


This follows a similar cut earlier this year in July, which supposedly freed up ¥1 trillion. It must not have had the intended effect, or the economy is much worse than earlier estimates, because why would they have to do it again, and/or why would they expect better results this time? 


If banks are not lending, it’s not because they don’t have the reserves. There have been empirical studies relating to RRR, banks lend first, then go out and find the needed reserves. Giving banks room in the RRR does not make them want to go out and lend.


This also occurs right when Evergrande is facing imminent default of the offshore debt, if it hasn’t defaulted yet at the time of writing. Reports are that Evergrande will default on $19 billion in international bonds and the second largest international debtor in their real estate sector, Kaisa, has also defaulted on $12 billion in offshore debt. The contagion continues.


Lastly, we compare and contrast the 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 intermingled, yet where Powell paints the story that the economy is doing very well, and there is a danger toward too much growth and inflation, the PBoC says according the South China Morning Post, a state-connect English language news outlet out of Hong Kong, the central bank needs to “inject liquidity support into the economy in advance, to cope with potential challenges ahead.” The contrast is apparent. The Fed is providing positive forward guidance and the PBoC is negative.


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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