The following is a direct excerpt from Marty’s Bent Output #1271: “Rising prices, begging and the relative strength of Bitcoin.” Sign up for the newsletter here.
Last week we discussed the fact that sovereign credit default swap spreads are completely deviating from their historical averages. In this article, we have highlighted that rapidly rising interest rates are beginning to have a significant impact on government bond interest payments. Our friend Lawrence Lepard has done some rough calculations on the precise implications of this type of high-yield environment for the amount of money the US government will owe its counterparts in interest payments if interest rates continue to rise. At that rate, interest payments will be about 3.5 times what they will be in 2020. Of course, this will not happen immediately as many of these government bonds have to mature. However, looking at the maturity calendar, a significant portion of these Treasuries will mature over the next two years.
Even if interest payments on the US government debt do not increase to $1.2 trillion immediately, they will increase significantly in a fairly short period of time. This comes as tax revenues will almost certainly fall dramatically as Americans try to cope with an inflation rate well above what is being reported via the CPI. and as capital gains tax revenues dry up, most will likely have to report losses on their stock portfolios and home sales. Anyone with a shred of common sense and rudimentary math skills can see that this issue will have a material impact on people’s confidence in the US government’s ability to pay its debts — and, in turn, public confidence in the ability of the US government to pay its debts USA to do this the “leader” of the western world. It doesn’t matter how much the DXY rallies.
Not only that, anyone who has become totally dependent on the easy-money gravy train that rolled out of the station in 2008-2009 is literally beginning to beg for the Federal Reserve to reverse course in its restrictive policies. In the last three weeks alone, we have seen the UN, the International Monetary Fund (IMF) and Cathie Wood of ARK Investment come out and directly and indirectly call for the Fed to reverse course.
We are in very strange times. Everyone from the UN to the IMF to big money managers come out and admit that their way of being depends entirely on the gravy train hurtling down the tracks at full speed. They have built their worldview around a dependency on central planning and free flows of money that are driving up the prices of the assets they own and lulling the world into a false sense of security. Markets have been forced to abandon their heroin addiction and the withdrawal shocks are more severe than anyone could ever imagine them to be. The world enters unknown territory. Quietly in the background, as heroin addicts beg their dealer to give them their dose, bitcoin is showing relative strength.
While those in the mainstream continue to boo $18,000-$20,000 worth of Bitcoin after a roughly 75% drop from the highs reached late last year, the nascent peer-to-peer digital cash system appears to be laying a firm footing develop as everything around it starts to crumble away faster and faster. This is something to keep an eye on in the coming weeks and months. Who knows if this relative stability will continue or not? If this is the case while everything else continues to crash, it would be a massive signal that there are likely more and more people out there recognizing the value proposition that Bitcoin offers as monetary value separate from the whims of the central planners, who set the bitcoin on fire World on fire.
Could we be facing decoupling? We will see.