Thread by @josusanmartin

What happened to the US Monetary Base after the 2008 financial crisis just seems wrong.

Time it took to 5x the MB:

1983 - 2008 => 25 years (From 170 to 850)

2008 - 2014 => 6 years (From 850 to 4150)

(Thread)

Where did all these money go? Probably here:

https://twitter.com/Schuldensuehner/status/1111932831444463617

It certainly didn't cause the inflation that the monetarists feared.
M*V = P*T

M = Money Supply
V = Velocity
P = Average Price Level
T = Volume of Transactions of Goods and Services

If this equation worked it would mean a decrease in V of around 80%.

As we can see P didn't move much, and neither did T (the US economy). While the US did suffer a recession, its scale is far from the 5x increase in M.

So how did the Fed get this yuge amount of money into the economy. By buying all kinds of securities, specially US Federal Debt.

Yeah, the debt level of the US Government as a percentage of the GDP skyrocketed. Because they were able to issue debt at the lowest interest rate in decades, since the FED was buying everything.

This created a feedback loop, since debt paid really low interests, investors' money started leaving debt markets and flowing into the stock markets. Remember the previous graph?

The US stock market entered one of the longest rallies in its history (10 years and counting).

But the US wasn't alone in all this, other countries copied the recipe (to a certain extent). So most countries in the world increased their monetary base, their debt to GDP ratio, and their central bank's balance sheet.

But nobody really went as far as the US, so the markets reacted as expected and the US dollar weak... sorry, the US dollar actually strengthened!! After debasing their currency and almost doubling their debt. So what's going on?

Graph: en.wikipedia.org/wiki/U.S._Doll…

Well, some jurisdictions tried something that hadn't been tried before, and that no economics textbook explained. The Central Banks set negative interest rates. This means that private banks could take out a loan, and instead of paying interest, they got paid interests.

This is pretty crazy stuff right there. The idea was that even with 0% rates the economy was too slow, and people weren't borrowing, so maybe if they paid banks to borrow, maybe that would get the economy going. It kind of didn't.

en.wikipedia.org/wiki/Negative_…

When all these started happening, circa 2008, some economists (I guess) came up with the term Quantitive Easing or QE to refer to all the measures. On 13 Jan 2019 a Wikipedia article had to be created, because nothing like this existed before.

en.wikipedia.org/w/index.php?ti…

So going back to my initial point, many things seem wrong. We are witnessing one of the largest monetary experiments in history. Nobody really knows how to put the genie back in the bottle, meaning: unwinding the Fed's balance sheets, reducing the debt, and the monetary base.

Meanwhile, the US President is trying to pressure the Fed to lower interest rates again, since both the economy and the stock markets are showing warning signs.

https://twitter.com/realDonaldTrump/status/1111745178824511489

I really don't understand what's going on, and while there are people that have a much better grasp on the situation than I do, they still don't seem to know that much either.

I feel like I need to end this thread with some kind of advice, so maybe, I don't know, buy some bitcoin? It seems like a good hedge, and it is certainly easier to buy and store than gold.

One of the smartest person in the crypto space, @CryptoHayes seems to have reached the same conclusion by looking at the monetary policies of the US and China: Buy Bitcoin.

blog.bitmex.com/the-road-to-10…

@CryptoHayes @threadreaderapp unroll

Another disturbing indicator. While the interbank interest rate is near all time low, the credit card interest is near all time highs.

https://twitter.com/Schuldensuehner/status/1114847033423269892?s=19

*2009

@CryptoHayes Another very smart person in the crypto space, @Travis_Kling, with a similar advice:

"It would be naïve to think this ‘experiment’ is going to end without significant market stress. A bet on Bitcoin is opting out of this experiment"

theblockcrypto.com/2019/04/01/bit…