CPI for November came in this morning. Headline numbers continue to bounce around above 3%, while core continues to gradually decrease. 🧵

Some people assume that the end of inflation means prices go down, but instead it just means the rate of change of prices decreases to the target rate.

There's permanently more money in the system, and prices in aggregate are permanently higher.

Since the start of 2020, the United States has taken on $10.7 trillion in new public debt (i.e. accumulated deficits).

That's about $80k per household in four years.

Has your household received that much in deficit spending? Some did, but likely not yours. Some households received hundreds of thousands or even millions in stimulus.

And a sizable chunk of them were wealthy law firm or investment firm owners, or and various rather large business owners (100s of employees) that were not even disrupted by the pandemic/lockdowns.

Four monies, personified:

-The Golden Monarch
-Lord "Uncle" Sam
-The Dragon Emperor
-Archmage Nakamoto
🧵 The Golden Monarch economically defeated all opposition and reigned supreme for thousands of years. Now ancient and wise, and having seen the entirety of history, he contemplates his diminishing role in the modern world and wonders if he could have done anything differently.

Often I see people assume that with full-reserve banking, there would be no credit.

But full-reserve banking just means that loans are funded by time deposits rather than demand deposits. In other words, there is duration-matching between assets and liabilities. 🧵 In that arrangement, bank customers that need to be able to access their money on demand, get full-reserve liquidity.

Customers that want to earn a yield with risk can put some money into time deposits, which the bank can use to make loans of similar duration or less.

The #Bitcoin side of my feed has tremendous comment liquidity- I write something about it and get an *immediate* response by the hundreds or more.

Bear/Bull- I haven't seen this in years. It's different than sentiment; it's volume. Comment numbers, broadly.

Here's a thread. 🧵 Yes, I'm structurally bullish.

No, I don't know what it will do in the next six months.

Yes, institutions increasingly understand this more than you do. If you've not followed this in detail, you're going to follow eventually.

Chart via @PositiveCrypto

The fact that Satoshi:

1) published the Bitcoin white paper before he launched it,
2) kept it on track for 2 years with upgrades,
3) disappeared without ever spending his own coins for profit, and
4) had such skill that people can't prove his identity,

is... remarkable. Literally the Batman vs Bruce Wayne comparison is the only good one here.

Even if Satoshi is the NSA, people should have evidenced it by now.

A man can be killed, embarrassed, or shown to be weak.

An idea lives on and becomes a legend or a god. It's his material that matters.

I've been making the economic comparison between the 2020s and the 1940s for 3-4 years now, while optimistically saying that hopefully it would be "less kinetic".

It has become "more kinetic" lately, so here's a brief thread on the issues. Unfortunately it goes both ways; sovereign debt crises tend to lead to war, and war tends to lead to sovereign debt crises.

An indebted empire can lash out, or enemies of the empire perceive the gates to be down, or earlier war is what causes the debt crisis in the first place.

Some people suggest we should ignore market forces and signals like "price", in favor of the environment. I get the sentiment.

But if something is more expensive, we should ask why. Is it more materially intensive? Is it more environmentally impactful than we've been told? There are two potential answers here.

One answer is tragedy of the commons. If I dump toxins into a river to make a cheap product and not pay for the remediation costs, I am polluting the commons to compete on price. The costs are hidden and dispersed. That's bad.

The EV market is very polarized.

Some people seem to think it’s a climate panacea. Others seem to think it has no value.

The answer from broad science lies somewhere in the middle, with nuance. 🧵 Many people think electric vehicles are new tech, but they are not. They have been around since the 1800s, as long as internal combustion cars.

They were outcompeted because batteries are inefficient energy storage mechanisms compared to hydrocarbons. Now, they stage a comeback.

Heading back to Egypt for the rest of the summer.

Over the past 18 months or so, the Egyptian currency has been cut in half relative to the dollar.

So my little wad of cash that I had lingering from last time that I will be bringing with me is worth less.

1 USD = 31 EGP
A🧵 Egypt needed an IMF loan to keep their dollar-denominated debt in working order. And one of the conditions from the IMF was to devalue the currency, to try to improve import/export balance.

It makes people poorer, but then (arguably) more competitive in the global labor market.

From interacting with nine-figure and ten-figure asset managers over the past several years, I've come to a few observations. 🧵 An entity that manages over a trillion dollars is like an entity that manages a million-person city.

It's not unanimous. There are factions, concentrations of knowledge, and so forth. Anyone who works with them knows this. In short: it's big and complex.

From 1945 to 2022, the total amount of debt (public and private) in the US increased from $363 billion to $93,497 billion ($93.5 trillion).

That was a 7.5% annualized increase. And it was very smooth- there was only ever one time where it decreased slightly: 2009. A debt is a claim for dollars. Going into the 2008/2009 crisis, there were $53 trillion claims for dollars and less than $900 billion ($0.9 trillion) in actual base dollars. It was a 63x ratio.

The game of musical chairs was breaking.

The two biggest source of broad money creation are 1) bank lending and 2) fiscal deficits.

In the 1970s inflation saga we had lending dominance, while in the 1910s, 1940s, and 2020s inflation sagas we had fiscal dominance This chart shows year-over-year loan creation and fiscal deficits for the 1960s/1970s in absolute dollar terms (billion USD) compared to the prior year. Loan creation was a bigger source of money creation than deficits, and drove inflation.

So far, the Treasury's approach of raising money on the shortest (and most expensive) part of the curve is working well for financial sector liquidity.

Reverse repos down bigly: If they continue to focus on short-term debt financing of this magnitude, it should be negative for reverse repos, flattish for bank reserves, and positive for bank deposits.

Saying that bank deposits are money but bank reserves are not money, is kind of like saying food comes from the grocery store rather than the farm. Dollars are liabilities of the Fed (banknotes + reserves). That's the monetary base. That's the farm.

Bank deposits are bank IOUs for dollars. When you send money to someone, you tell your bank to send reserves to their bank and credit that person's account with the same value.

Some of my posts and interviews on liquidity went semi-viral lately so it's worth a thread to summarize/clarify the dynamic. 🧵 The first half of 2022 was really bad for liquidity and asset prices.

By late Q3 2022, the dollar index spike high, the U.S. Treasury market became sloppy, the U.K. gilt market broke, and the stock market dropped hard.

Lost in the conversation around recent currency/energy news, is the question of whether the current system of dollar hegemony is even good for the US.

The conversations just assume that is is, and discuss the risks of losing it. Dollar hegemony increases our import power and decreases are export competitiveness, which feels good but hollows out our industrial base over decades.

It’s important for DC and the military industrial complex, while harming domestic manufacturing.

In 1978 and 1979, the United States issued government debt denominated in Swiss francs and West German marks.

The goal was to acquire foreign-exchange reserves to backstop the dollar's flailing weakness.

That's how vulnerable things were at the time. These were (perhaps unfairly) called "Carter Bonds".
en.wikipedia.org/wiki/Carter_bo…

Jimmy Carter then appointed Paul Volcker as the Fed chairman in 1979, and he raised rates and put the U.S. economy into a recession to try to stabilize the dollar.

The PCE price index came out today and showed re-acceleration on a month-over-month and year-over-year basis. The Fed has a dilemma, almost a race, between two things as they raise rates here.

1) Raising rates generally results in tighter borrowing standards on a lag. This can reduce lending-driven money creation and lead to disinflationary demand destruction around the margins.

Horizon Kinetics just launched the "Energy and Remediation ETF" $NIVR, which invests in hydrocarbon companies as well as companies that mitigate the environmental impacts thereof (e.g. water recycling, flare gas capture, etc).

IMO, that's better than various ESG products. Most ESG products are about either 1) unrealistic avoidance or 2) the S&P 500 sorted slightly differently but with higher fees.

Products like this target the actual substance: get people the energy they need, and also minimize the harm associated with getting that energy.

After the dust settles from a major event, whether inflation was just caused by temporary supply shocks or by monetary debasement is answered by one key test:

Did aggregate prices go back to their previous level, or no?

🧵 World War I?

No, prices remained structurally higher: