2- Inflation persists throughout history for a number reasons. One important reason is that the structure of democracy is conducive to it, esp. as people figure out they can ‘vote themselves money’ and the inflation tax becomes a transfer mechanism for public demands.
3- Inflation is also the political path of least resistance, especially when governments around the world are saddled with gargantuan deficits and even larger debt-piles.
Think about it. Much easier to conjure endless trillions from thin air than to default on social security...
4- That, of course, is not to say history is free of bouts of sharp and rapidly falling prices.
The problem is that today, Keynesians rule, and they don’t distinguish between falling prices (good) and a decrease in the money supply (bad). They consider both “deflation”.
4A- So when prices fall due to advances in productivity, they respond by firing up the printing presses, since they misplace their fear of a decrease in money supply (which can feed on itself in a deflationary spiral) for falling prices (which are healthy & wholesome).
4B-As a result of the printing, inflation creeps up in financial assets and real estate, but also other interesting places...
5- Another important factor is the manner in which money is created and distributed. We’re now entering a regime change, shifting focus from monetary measures to the more inflationary fiscal actions that put newly printed money directly into the hands of businesses & consumers.
6- In the end, of course, we’re gonna print until our faces fall off. I don’t know which paper currency will be the last one standing, but unless some other force collapses this house of cards sooner, they’ll all fall.
7- So, my friends, in the meantime, let’s focus on predicting the inflationary cycles to the best of our ability, seeing the writing on the wall, and preparing our PFs accordingly.
Why We’re on the Precipice of Another Bitcoin Mania...
A thread.
Note: it has nothing to do with Bitcoin replacing fiat money anytime soon.
1- We can quibble all day about whether BTC is “the future of money”.
Briefly, I think not, since I fundamentally believe that any money must have “non-monetary use value” in the free market before it becomes money. (Yes, this would disqualify govt-issued paper money too.)
2- But I digress, as debating Bitcoin’s status as “money” is not the aim of this thread.
Rather, the aim here is to persuade you that *institutional buying* of Bitcoin will likely propel the third big Mania at some time in the not-so-distant future.
1- We’re seeing a massive and unprecedented expansion of the money supply, and at at alarming rates. I don’t care what you think about M2, this sort of growth should not be dismissed.
Longer term, this will shape up to be ‘Project Zimbabwe’, as @hkuppy has coined it.
2- While this sort of monetary inflation first manifests in the capital markets (most noticeably as a boom in stocks), it eventually raises the prices of goods & services too (imperfectly proxied by CPI).
For this to happen, we need higher money velocity, now at an all-time low:
1- The Fed is fighting deflationary forces because nature is trying to collapse unprofitable zombie companies that specialize in capital destruction. Since our monetary system is debt-based, a collapse of zombie companies creates a collapse in the money supply, i.e. deflation.
2- Deflation can feed on itself because it causes asset prices to fall. When asset prices fall, the asset side of companies’ balance sheets fall. But the liabilities side does not. So equities are wiped out.
3- The Fed is deathly frightened of deflation, which they think are falling prices, because they associate that with the Great Depression of the 1930’s. To offset falling prices they print massive amounts of currency and use it to buy everything in sight to lift asset prices.