Thread by @Breedlove22

When fiat currency dies, conditions tend toward deflation first (since money becomes more valuable when uncertainty looms), before becoming increasingly inflationary and, finally, hyperinflationary. #Bitcoin was purpose-built for this.

A thread on my current macro view on USD:

Economic uncertainty is extremely high. Market participants are stashing dollars to self-insure against this uncertainty. Consumers are delaying discretionary and major purchases.

This behavior further constricts economic activity in a consumer-driven society, leading to more economic fallout, more uncertainty, and so on recursively. Policy responses are increasingly uncertain (so much so that the charts are broken temporarily):

Already, the number of people currently employed is lower than at any point this century, and it is falling rapidly. This does not consider the marginalized workforce, who have had hours or wages reduced.

Remember: the US population has increased over 50M people in the past 20 years, and wealth disparities have soared.

Taken in combination with a strong international demand for dollars, these factors are driving a collapse in spending and strengthening of the US dollar: such favorable conditions are a strong impetus for The Fed to continue printing.

My view as that The Fed will overshoot and, emboldened by international dollar demand, will become excessive (as they have both the precedent and incentive to do so). This will setup the US dollar to enter the early stages of hyperinflation by 2022.

By 2022, the US Government’s interest expense + mandatory outlays will (definitively) be more than its total tax revenue—this will force them to “print their expenses” (aka moneyball expenses), which historically is the first stage of hyperinflation.

Some think inflation is not a threat because of the deflationary conditions subsequent to the 2008 Great Recession. However, the current economic shock is different…

In 2008, the economy suffered no supply-side shocks, just a contraction in demand due to a collapse in credit markets. In 2020, there are widespread disruptions to global supply chains—from car parts to meat—things are becoming more scarce.

So while reservation demand for dollars is strong now—as a hedge against uncertainty—this gives central bankers a dangerous “immediacy bias” in which their easing efforts cause no immediate negative consequences.

But when lockdown restrictions are lifted, and consumer demand returns to find significantly reduced supply levels, prices will begin to rise—an ascent that will be gradually, then suddenly, accelerated by recently injected liquidity.

As prices being rising faster and at a faster rate, and people witness US dollars plummet in purchasing power, they will rush to acquire anything which cannot have its supply “quantitatively eased”…

We’ve already seen price spike in Uranium due entirely to supply restriction. What happens when these price spikes are amplified by more dollars chasing the less stuff?

It could be many years before hyperinflation sets in, however I see this crisis emerging 3 phases…

PHASE 1: As demand returns, we will realize that for the first time in decades there is inadequate industrial capacity (due to supply chain interruptions) to satisfy it.

PHASE 2: Nation-states will respond to this breakdown in trade, which highlights our global interdependence, by (stupidly) pushing for more domestic self-reliance and protectionist policies.

This will further depress trade, the division of labor, and productivity—an unwinding of deflationary pressures from globalization over the past several decades will be unprecedentedly painful on prices.

The decline in inflation from the 1980 peak coincides with China opening its trade policy and becoming the world’s production factory; the reversal of the process will obliterate the 40-year deflationary trend.

PHASE 3: As central banks move too late to try and combat inflation, they will use the last arrow in their quiver and increase interest rates, which (unsurprisingly) have collapsed since going off the gold standard.

This will increase the cost of capital for firms, some of which will be passed on to consumers as price increases, further exacerbating USD inflation. Being between a proverbial “rock and a hard place,” The Fed will finally lose control as the US dollar slips into hyperinflation.

a.You want to be hedged against inflation and deflation. Holding US dollars is safe short term, but “Hard money” and useful commodities are your best bets over a longer time horizon. For example...

1. Gold (not silver)
2. Uranium (Nuclear power is one of the most efficient forms of energy production)
3. #Bitcoin—scarcest liquid asset in the world that is virtually immune to all government action

b.Equity market price signals will be destroyed during this process (as we are already seeing), making them extremely high risk. Further, governments will be scrambling to tax and control everything they can, so corporations face major fiscal and regulatory headwinds.

Do not try and time the transition from deflation to inflation—there will be many false signals along the way, which will only be obvious in retrospect. Better to move short term positions to deflation-hedged, and long term positions to inflation-hedged.

Only #Bitcoin hedges against both deflation and inflation:

- Deflation: Bitcoin’s exponential deflation will always outpace USD deflation
- Inflation: Bitcoin was purpose-built to countermeasure "expansionary monetary policy" (aka time-theft)

Property rights will be compromised as governments nationalize real estate, confiscate money, and seize whatever they can. If the US dollar falls, the nation-state model as we know it will go up in flames.

As the fires burn, it’s important to remember: there is only one money that offers its holders an imprescriptible property right—#Bitcoin may become the most valuable asset in a world ravaged by government plundering.

What a time to be alive… Digital technology is truly changing the game in virtually all domains of life. Compared to #Bitcoin, not even gold is safe…

Stay Safe. Stay humble. Stack Sats (for Salvation).