As World Peace and the Economy Crumble, Credit-Based Money Will Turn to Bitcoin

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As nations go to war and the global economy suffers, our credit-based system will inevitably seek out sound monetary alternatives.

“Fed Watch” is a macroeconomic podcast, true to the rebellious nature of bitcoin. In each episode, we challenge traditional narratives and Bitcoin by examining current macroeconomy events across the globe, with a focus on central banks and currencies.

In this episode, CK and I broke down some charts including bitcoin, dollar, European energy, and US gasoline futures. Then I read some articles and discussed the complicated financial situation in China. Finally, we take a look at what’s wrong with Zoltan Pozsar’s latest dispatch on “Chussia.”

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Listen to the episode here:

Complicated financial situation in China

As CK said during this episode, “we were ahead of the situation in China.” We were calling the deteriorating conditions there months before other macro podcasts. While they were still shouting about “inflation!” we were talking about the geopolitical and geoeconomic elephant in the room, China.

In this episode, I gave a quick update for the week on the new measures put in place by the Communist Party of China (CCP) to combat the implosion of the credit crunch in that country. Of course, the main idea is to try and fight a debt trap with more debt.

I have read parts of a few articles. First, this one from the Global Times, which details some of the 19 new measures it is putting in place. And guess what, that’s more debt:

“Among the 19 new policy measures were the addition of more than 300 billion yuan ($43.68 billion) of quotas for policy and development financial instruments, and a green light for central enterprises of power generation, among other things, to issue 200 billion yuan of bonds. ”

The second article, this one one from Bloombergreviewed some of the uses of the estimated $1 trillion infrastructure spending spree:

“Beijing is making available 6.8 trillion yuan (about $1 trillion) of public funds for construction projects, according to Bloomberg calculations based on official announcements. Total spending could be even higher than that – three times that amount, by some estimates – once bank loans and corporate funds are added.

The article is interesting because it happily reviews what the Chinese are likely to spend:

  1. “More renewables than Europe” (worked well for Europe, didn’t it?)
  2. “The longest water tunnel in the world”
  3. “From concrete sprawl to greener cities”
  4. “More than twice the high-speed trains in the world”

To show that these efforts aren’t as productive as claimed, I’ve gone through a few in-depth points on the podcast.

For starters, the water situation in China is horrible. They only have about one-fifth of the water available per person in the world. His huge water projects of the last decade have failed from the reports I’ve seen. It is estimated that all these hundreds of billions of expenditures on water-related projects will increase the amount of water available by 122 billion cubic meters, or 100 cubic meters per person per year. That’s a lot, but it only increases its per capita water availability from about 400 cubic meters per person to 500.

Regarding the high-speed train, the number of high-speed trains already present in the country causes great financial problems, because it is already very unprofitable. This expansion is intended to be a huge waste of money, not a productive use of debt as assumed.

For example, the Bloomberg article says: “The most ambitious [new high speed rail line] is a 1,629 km line connecting southwest Sichuan province with the Tibetan capital Lhasa, climbing more than 3,000 meters through earthquake-prone terrain and glaciers.

It seems unprofitable and very risky to be destroyed by these earthquakes and glaciers. Sounds silly like a productive use of money.

Zoltan Pozsar’s Last Dispatch

Most of the cue in this episode, in my opinion, comes from Zoltan Pozsar’s breakdown. I have read several quotes from his most recent shipment on geopolitics and explain why he is wrong. He is a brilliant expert in financial plumbing, but obviously not in geopolitics.

The problems start right from the start, because he tries to use three pillars for this analysis as if they were causal. In reality, they are caused by more fundamental elements:

  1. Cheap immigrant labor in the United States
  2. Cheap Chinese products in the United States
  3. Cheap Russian natural gas to Europe

The problem here, however, is in the sentence just before he lists these three things. He says, “Global supply chains only work in times of peace, but not when the world is at war, whether it’s a hot war or an economic war.

So what is it ? Is peacetime or cheap stuff more basic? It is definitely the time of peace. In the podcast, I offer my three pillars of the past 50 years of growing globalization and trade as follows:

  1. Peace and free trade, respecting international organizations
  2. Productive credit opportunities i.e. low credit saturation
  3. Money based on credit, highly elastic money to grow in all productive opportunities

It is a mistake to think of the past 50 years as a “low inflation” environment. Of course, CPIs around the world were low, because productivity was rising so rapidly that prices were holding steady. But credit (money) was growing rapidly. It was literally an era of money printing.

Now, like an addict with decreasing doses of his drug, the system is now less inflationary with deflationary pressures prevailing. We are now entering the period of post-credit expansion. Literally, it’s a deflationary era, to hell with the CPI.

In the podcast, I linked bitcoin to these pillars. What we see today is a systemic breakdown of my three pillars. Peace is falling apart, as evidenced by Ukraine and other global spring events unfolding today. The global economy has become saturated with credit, leaving no economically productive use (or at least relatively little). These two things will lead to the final pillar, with credit-based money being pressured into a new form of money, back to commodity or sound money, with bitcoin being the best modern choice.

I learned more about Pozsar after that on the show. Specifically, his point on Russia and China (“Chussia”) is a perfect marriage, with Russia being a major resource producer and China the factory of the world. The only thing he forgets is an end consumer. You can’t just cut yourself off from the consuming half of the global economy and expect things to work out.

Either way, you’ll have to listen to this juicy stuff at the end.

This is a guest post by Ansel Lindner. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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