Is it a coincidence that bitcoin has broken $50K at the same time as the news media is full of stories about a potential US default as a function of failure to raise the debt ceiling in October?

The chart shows that $BTC (white) spiked exactly as US T-bill yields (yellow) spiked
That is, bitcoin prices moved sharply higher exactly at the same time as short-dated T-bill yields (those maturing after October 18, when Yellen has said Treasury funds will run out) spiked, and embedding a 'default premium'
We cannot prove anything statistically in a sample of one, and if we look at how the dollar is trading, we do not have a global USD decline (the dollar has generally been firm in recent weeks), so it is not a slam-dunk conclusion.
But it fundamentally makes sense that crypto/bitcoin becomes more attractive, if there is default risk associated with 'fiat instruments'.

This is a common thought in EM space. And perhaps it is a relevant thought in the US too...
We can have a long debate about whether the default risk is real, and clearly the premium on US T-bills is not in Evergrande magnitude. But it is there in some form, and it should not be there. It is bizarre.

The USD is the world's reserve currency. It is absurd that instruments, such as T-bills, that are supposed to be the most risk-free you can imagine, has this type of issue hanging over them.
For those that worry about 'cryptoization', this is real problem. Capital flight is supposed to be an EM issue. But if USD assets are not safe, it could be a major bonus for the crypto space, via USD flows.

Policy makers are thinking hard about digital central bank currencies, to compete with private sector crypto. But it would be much a more effective defense to make the fiat version safe and sound; and avoiding default risk on T-bills would seem a very simple first step.
I will leave it at that. US politics are very special, as the debt-ceiling debate shows regularly. And the side-effects of that are many and complex.


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More from @jnordvig

3 Oct
It did a purely anecdotal thread on inflation yesterday, just to illustrate basic aspects of 'inflation psychology'

I got some pushback, so I will add a bit more color. WHAT IS DIFFERENT ABOUT INFLATION IN 2021

First, I am not a person who always worry about inflation. I have been observing how central banks in the period 2008-2019 persistently OVERestimated inflation. Hence, I am always skeptical when I see a confidently aggressive inflation forecast.
Second, the link between money supply and inflation is very far from simple, even if some textbooks (and many observers) pretend it is simple. It is not the money supply growth that is fundamentally new in 2021.

I wrote about that in December 2020...…
Read 20 tweets
2 Oct
I run a business @ExanteData. I have always been thinking of the price of our product/service as only a function of its quality.

But now, as some our our cost rise rapidly (heath care up >10%, IT equipment > 30%), I start thinking that there has to be a cost adjustment too.
It is just an anecdote. But when the supply chain issues and other cost pressure are so broad and long-lasting, it is not crazy to think that there will he 2nd and 3rd round effects from the inflation we observe now.
My inflation expectations have been (in my head) rounding to roughly zero for the last five years. It has not been a feature of my price setting. And now I am observing stuff that makes me think differently about cost, and appropriate pricing.
Read 4 tweets
25 Sep
Last week was a serious one. Today, I will try to go in the other direction.

This is partly because a FinTwit guy (see proof below) just said I have ‘humor’ & because I hope to make the next @donnelly_brent top 10 list for funny twitter people.

I may be joking about all this, maybe not (your call)

Economists being funny is all about managing expectations, and I am certainly not joking about that.

I will tell you one brief anecdote, and you will see what I mean.

Here we go...
1/ Some years ago, I went to one of those formal lunches at the Harvard Club (the one in the middle of Manhattan). Lots of mahogany, butler-like staff, and the invited group was sitting around a rectangular table in one of the private dining rooms upstairs.
Read 12 tweets
23 Sep
I had been planning to do a daily China thread this week. But things got a little busy, so I am behind schedule. In any case, here are some observations on why the Renminbi (CNY) is so stable, despite the risk aversion around Evergrande...
Let us start with a recap:

white line is usdcnh (the cnh is holding at around the strongest level since 2018 [low is strong])

yellow line is CNY vs basket (the CNY is strong on a broad basis, around a 5y high [high is strong on this metric]
Hence, while many Chinese assets (from real estate credit to tech equities) have been on the back foot, the currency has been stable, or even strengthening.
Read 18 tweets
20 Sep
Just a few more observations on Evergrande/China Contagion.

Last week, saw the Evergrande tension spreading through the real estate sector (but not much beyond, except Iron ore)

This week, there is already broader based pain...
1/ Today, we have seen Chinese financials are under pressure (in stock space, down >4%

Regional banks down >5% on the day (not shown in table)

2/ global spill-overs are accelerating

Iron ore down another 5%
Aussie stocks down >2%, with materials leading the move down (-3.7%, given the china link there)
Read 9 tweets
19 Sep
Yesterday, I did a mini-thread on what is going on under the surface in Chinese High Yield credit (and it generated A LOT of feedback).

Hence, here is a follow up thread on the structural issues in Chinese real estate, and differences to the US in 2008.
Today, I will show some background data on the structural problem in Chinese real estate, and offer some basic perspectives on how the situation differs from the US in 2008 (not better or worse, but simple different)
The memory from the US in 2007-2008 is still fresh. The US housing market was too hot. There was too much leverage / building. And we ended up with a big crisis => the losses had to be allocated (globally), and policy makers were not willing to (or politically able) fill the gaps
Read 25 tweets

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