Thread by @BMBernstein

Many claim that the BTC bubble has burst. BTC isn't a bubble --it's a response to the very real bubbles in our economy today.

Govt control of money and the most important price in a capitalist economy--the interest rate--has caused distortions and true bubbles. Let's take a look

1. Since the 1970s we've been progressing through a long term debt cycle. Both federal and private debt have skyrocketed from 140% of GDP in 1970 to 367% in 2009 and even higher today.

2. This has been driven by a longer term reduction in interest rates. The fed funds rate has decreased from 17.5% in the 1970s to near 0 post 2009. This isn't due to natural market forces but fed direction. It's just starting to now rise for the first time (good luck Powell).

3. The S&P 500 has risen 10 fold since the mid 1970s from massive credit induced growth. Valuations are on par with other pre crisis periods.

“the global economy has been powered by credit – its expansion in the U.S. alone since the early 1970’s has been 58 fold" -Bill Janus

4. Debt accumulation cannot go on ad finitum. At some point, all income goes towards interest rates and the credit needs to be paid back. This is called a deleveraging. The last time this long term debt cycle peaked was in 1929 as debt collapsed from 255% of GDP to under 150%

5. Many thought that this was happening in the "debt crisis" of 2008, but instead debt has grown *even further*. Mckinsey estimates that we've added *$57 trillion* of debt since 2009. The ratio of debt to GDP has increased in *all advanced economies* since 2007.

6. China is on another level. With their maniacal focus on their 6.3% GDP growth target, debt has skyrocketed. Bank asset growth has been 450% since 2008 reaching $40tn.

China has $40tn bank assets to $11tn in GDP. US for comparison has ~$17tn of bank assets to $19tn GDP. LOL

7. How could they possibly be giving that many loans without relaxing credit standards? They're cant be. This isn't to finance growing businesses. Cumulative biz free cash flow has fallen since 2008 while debt has risen dramatically. It's mainly gone to real estate and concrete

8. The global bond market is in a massive bubble as well. As of 2017 there was $9tn of *negative yielding bonds*. People are giving their $$ to govt with a guarantee of loss if held to maturity. There are upper bounds on how high a bond in price should go and we're about there🤔

9. Not only that, but EU *junk bonds* are trading in line with US treasuries -- the benchmark "risk-free" rate for the world -- despite their higher debt to GDP ratios. Well done Mario Draghi...

10. The US is far from off the hook. Household debt has decreased since 08. And so did Corporate debt at first. But since then it's rebounded beyond what it was in 08. And the fed balance sheet has gone from $800bn to $4.4tn through QE and asset purchases.

11. US Federal debt has also ballooned to over 100% of GDP. But what's more concerning is that as baby boomers retire, entitlement spending is about to explode.

Drunkenmiller estimates that if you take the PV of entitlement spending our real debt is actually $211tn vs $11tn

12. Entitlement spending has increased to 70% of our budget. As interest rates hit their lower bound and are slated to rise, our interest payments will as well. The only way US can pay these liabilities will be through inflation and debt monetization

13. The US welfare / military spending + interest rate spend isn't sustainable. This is coinciding with other countries moving away from the petro dollar. Is the USD hegemony coming to end? Many think reserve currency status lasts forever but history shows thats not the case

14. I don't think it is just yet. Despite the US concerns, it's doing well compared to the shitshow in other countries. Look at Ireland / Greece. Debt / GDP has *more than 2x since 2007*. The question is what happens during the next crisis which unfortunately is inevitable.

15. In the 1998 LTCM crisis, wall street bailed out the hedge fund. In 2008, central banks bailed out wall street. But what happens in 2018? With the backlash over the 2008 bailout and their balance sheet size will the central banks be able to provide liquidity again?

16. There are 2 possible scenarios IMO: (1) CB's cannot push across another bailout b/c of political pressure. Liquidity halts and the IMF steps in. (2) CB conducts unorthodox monetary policy: helicopter drops, etc.

17. Neither scenario is good for the USD. If (1) the IMF steps in with SDRs, other countries will probably demand that the USD is no longer the reserve currency to pass the bailout. Number (2) probably leads to extremely high inflation and a flight to another monetary asset.

18. What's unsustainable isn't BTC price but instead is:

- The welfare state
- Arms race of currency devaluation
- USD hegemony
- Global debt
- Bond prices
- S&P 500 prices
- China debt
- Global peace
- Low volatility
- Political chicanery and micromanagement

19. BTC is underpriced relative to the macro-political environment we live in.

The world is in search for a safe haven -- a hedge from the central bank and political micro management and BS we've seen since we've come off Bretton Woods.

20. 2008 was far from a black swan event. It was a clear representation of the fallacies of modern central banking and the complications of the current floating fiat currency era we live in. It's a preview for what's to come.

21. When evaluating CC's, it's important to take a bigger picture view. BTC is a legitimate 10x improvement over our current financial system. It's so much bigger than mere digital coffee payment mechanisms. Every team spending time "improving BTC" needs to also improve it 10x