Thread by @JamesRothmann

Remember what happend to Terra Luna last year?

@balajis just made a $1 million bet that the same thing is about to happen to the US Dollar.

https://twitter.com/jamesrothmann/status/1524617143635038214

Recap of Terra Luna Collapse:
1. UST was pegged to 1 USD
2. To keep the peg, Luna coins were issued or burned depending on supply and demand.
3. When times were good, it was easy to keep the peg. The demand for Luna was high, so no problem issuing more.

4. But then the downturn came and the demand dropped and more and more Luna needed to be issued to keep the peg, lowering the price of Luna.
5. Until all confidence was lost and everything came crashing down in a deathspiral to zero.

So how might this work for the USD (and maybe the whole petro-Dollar financial system)?

1. Until 1971 the dollar was pegged to gold.
2. Since then the Fed controlled the peg, much like issuing Luna tokens, but instead used interest rates and money printing (and sometimes burning) to control the peg to real assets and oil.

3. When times are bad, they lower rates and/or print money and buy bonds.
4. When times are good, they increase rates and sell bonds and burn that money.

That brings us to where we are now:

In Covid, the Fed overstepped on the printing side, causing higher than normal inflation.

Then, they took a 180 and started increasing rates and burning money to contain the inflation.

As a second order consequence of the Fed always stepping in in bad times, people started relying on the Fed to do the same printing and interest rate lowering excercise.

But only this time, with the quick 180 on raising rates, some banks were caught red handed in this act of "Trust in the Fed".

Then the rumours started that the banks are not good for their money anymore and people started losing their confidence.

Much like people dumping Luna.

Now the banks are looking to the Fed to step in and lower rates again and print money.

Only this time, inflation is higher than normal, so the Fed is between a rock and a hard place.

Print and inflation goes even higher

Don't print and we get bank runs and collapsing markets

Human nature, Luna and history has showed us that time and time again, they will go with the printer.

But what happens next?

Like with Luna everyone will head for the exit. But instead of dropping Luna and UST for USD, this time people will drop their US Dollars.

If you don't want USD, where do you go to?

US Treasuries?
Real Estate?
Bitcoin?
Gold?

Going into anyone of these will just futher decrease economic activity, lower interest rates and spiral into even higher inflation.

Maybe even a deathspiral like Luna.

But what remains to be seen is how much confidence the world still has left in the fiat system.

It has happend time and time again where total confidence has been lost and all fiat currencies eventually go to zero.

Maybe (and hopefully) the Dollar doesn't go to zero this time around, but it might take a very big knock and a lot of confidence might be lost through this process.

Let's see where it goes.

In Summary:

1. The Fed Printed too much
2. The banks got used to it
3. Then the Fed realised they printed too much and raised rates too fast
4. Inflation is still high, but the banks need a bailout.
5. The Fed will print again.
6. This might lead to higher inflation, fast.

How do you protect yourself?

Buy bitcoin as an insurance policy and hold it in a cold wallet. #bitsignal

Buy Physical Gold

Buy Real assets (use loans - carefully)

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