We have a new substack out by @GeneralTheorist which digs into the core concepts of money supply, contrasting money expansion under QE (via the banking system) with digital currency (CBDC) provided directly to the public.
This may seem like an academic debate, and the presentation here is indeed conceptual. But central bank digital currency is potentially just around the corner in some jurisdictions. Hence, it is important to know how it can fundamentally alter the nature of monetary policy.
Digging into the accounting of digital currency also again highlights why 'asset swap QE' has such limited potency (outside a financial crisis). Digital currency provision blurs the border to fiscal policy, and that raises important legal issues, around central bank independence.
It is inauguration day, so I will leave it at that. We will revisit this topic on another day, I am sure (subscribe on link). But ironically, it is much relevant than ever, due to technology, and a philosophical regimes shift around debt/fiscal policy. END moneyinsideout.exantedata.com
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A) The ownership structure of bitcoin is special. Institutions (hedge funds etc) have only gotten involved recently, and not in size yet. This is the reason there is no portfolio contagion, bitcoin selloffs do not create 'enough damage'.
B) as more institutions get involved (as all indicators are that they will during this year) the position size and relevance to institutional portfolios will grow. And then portfolio contagion is also likely to increase.
B2) It is even possible/likely that increased portfolio contagion will impact correlations, creating a more positive correlation to other risk assets (think SPX), and this could indeed be self-fulfilling, as higher correlation will mean more portfolio contagion.
When I think about a country with testing issues, I think about Mexico, which has had a very high positivity ratio for its COVID testing through the entire pandemic (around 50%). But many US states are now seeing positivity rates really spike too, not far behind Mexico...
The trend higher in positivity rates / hit ratios (blue lines) are partly a function of less testing over the holidays. But it is still telling:
Ok, we are ready to officially launch our blog/substack called Money: Inside and Out. We have tested it and populated with 3 initial posts, and you can subscribe here:
One post, called "The Big Myth about Money and Inflation" touched on the conceptual misunderstandings around the link, and how the future may again shake things up, if monetary and fiscal expansion are (aggressively) combined.
Another post (from today) touched on the possibility of a liquidity crisis within the Eurosystem (written by our Advisor Chris Marsh aka @GeneralTheorist)
First, If one macro policy operates in isolation, it can be contradicted by ‘the other’ policy. This is especially relevant with monetary policy. In the past, expansive fiscal policy was often associated with monetary tightening (=not good, if you have spare capacity, low inf.)
Policy coordination, which ensures that monetary policy, and market rates, are not ‘fighting’ the fiscal policy can help solve this problem. =>coordination is good.
(apologies to my friends at Bloomberg news, including the ones involved in my interview earlier today, but.....)
Why have you changed all my menus to Spanish language while I was sleeping today?
[this was the language thing that broke the camels back...so now I will do a vent-thread]
why does the fingerprinting device on the keyboard only work 20% of the time, so that I have to fingerprint on the mobile B-unit another handful of time to simply get going, every day. I pay for the service, you can at least let me use it, hassle-free?!