Thread by @analyticalali

Macro/Inflation Trends have been a big topic in the Crypto space.
Was very much in @ThinkingUSD's camp regarding inflation vs. @mattysino but after listening to @RaoulGMI realized there is more nuance. Shout out to @ledgerstatus and @UpOnlyTV for driving the convos
Thread: (1/n)

@ThinkingUSD Macro Thesis:
1. Federal Reserve has bought 50-60% of all US treasuries issued by US govt since Covid
started. US Govt issuing bonds, selling to the Fed.

2. US deficit so big right now that no one can absorb it other than the Fed, basically financing themselves

3. US Govt tax receipts can't even cover their treasury spending so they need to issue more debt
just to service their existing liabilities (issuing debt to pay interest on their debt)

4. Last time we saw Debt:GDP this bad (~130%) was in WW2

Solution: Fed capping treasury rates at 2.5% on 10 yr, GDP growth 5-6%, super high inflation > 10% in 1940s & 50s for a few years => someone holding a 10 yr treasury was losing 10 - 15% annually

5. Covid cycle similar where we are seeing negative real rates down to 1% and very similar to how they had a large infrastructure package in 1950s (Eisenhower Highway System) => Biden 1.9 trillion package and 6 trillion budget they are proposing

6. How to delever 130% Debt:GDP back down to 60-70%?

Need some strong nominal GDP growth (i.e. 130% -> 70% need about 20% GDP growth for 5 years and majority of this will be inflation). This will light a fire in the Global Bond market => money will flow into other markets

This will lead to high flows into Crypto and other assets

World is drowning in debt and only way to get out of it is high inflation

@mattysino Thesis:

1. Disagreed with everything Flood said🤣
2. Yield curve tells us that market doesn't agree with Flood's about inflation
3. Under investment in US is huge opportunity (roads, highways bridges, infrastructure); US has major underinvestment problem

A normal yield curve implies stable economic conditions and should prevail throughout a normal economic cycle. A steep yield curve implies a strong economic growth in the future - conditions that are often accompanied by higher inflation, which can result in higher interest rates

4. Most USD is debt we owe to ourselves vs Japan - their debt was not denominated in yen so fundamentally different
5. Market is giving us free money right now, interest on debt is very low so we should take advantage of this, take this and fund infrastructure

6. No way we are having inflation similar to WW2 levels; haven't had extremely high inflation since 1980s; not impossible, but extremely unlikely (has been 41 years since we have had levels like that)

Raoul Pal Debt Supercycle Thesis:

1. Most traditional Macro people thought that the last recession would be end of the Debt Supercycle -- this did not happen

2. We hear everything is a bubble, but is it really?

3. Comparing Equities to Gold: this is in line with last 100 yrs avg.

Real Estate : Gold & Real Estate : Equities these are all in line with avg.

None of these are out of line (i.e. 1999/200 equities looked WAY out of line) vs everything

Conclusion: We have wrong denominator

4. Gold vs basket of 27 currencies excluding USD --> maybe fiat money is the thing that is being devalued

5. Inflation / Hyperflation: Maybe value of fiat money is devaluing and making assets look expensive. Changing denomination makes everything look pretty sensible

6. Only two things that have out performed Fed / CB balance sheets: tech stocks & crypto

7. Debt Supercycle maybe ends with a wimp and not a bang

8. Fact that things are moving towards digitization of assets may prevent people from getting wiped out by fiat devaluation

9. Non-tech equities will probably trade sideways vs Fed balance sheet; however, tech stocks will most likely outperfrom due to exponential age (AI, Robotics, EV, Green Energy, Distributed Computing, Crypto) => pushed by govt stimulus

10. Equity markets go a lot higher over time with CB continuing to use their balance sheets, which they have to do bc too much debt

11. Cash / Bond Holders will fail bc their compounded 2% returns while Balance Sheet growing at 15% so their purchasing power is down 13%

12. Generally speaking Crypto doesn't do well when CB balance sheets not growing, when rates go up we may see Crypto Winter

13. ***Real issue is wages not going up***

14. Thinks the bubble we have is in Fiat Currency