A quick 🧵on monetary policy because I see a lot of market commentators who don’t seem to understand what the Federal Reserve is thinking regarding the future path of interest rates. One way to think about monetary policy is in terms of the difference between the policy interest rate and the “natural” interest rate.

It’s debt ceiling time, which means silly people will bring up the trillion dollar coin idea. Just a reminder that this idea is extremely dumb. Let’s think about why. 1. The idea of issuing token money is not new. There are many historical examples of issuing token money when the government hits a funding constraint. The idea of issuing a coin with an official value > the value of the weight of the metal is not new. This causes inflation.

There seems to be a widespread confusion in the economics professor world as well. In the absence of a solution to the oracle problem, a deterministic supply is the only way to solve the problem outlined by Klein (1974). (1/x) The idea that a deterministic supply isn’t optimal in terms of stabilizing purchasing power has been known for a long time. Friedman didn’t argue his k-percent rule was optimal, but rather that it would prevent central banks from creating _additional_ volatility. (2/x)

A quick thread on bitcoin, crypto, and all that…

The creation of Bitcoin was not random. It was the product of deliberative efforts that people had been working on for decades. As more and more things were recorded electronically, these people recognized the need for privacy… One aspect of this was thinking about how to create an electronic form of money. These cypherpunks had a wide variety of backgrounds, but they studied money and monetary history. They learned from people like George Selgin and Larry White about commodity money and free banking…

For people in crypto,

1. Things are going to get worse. Probably a lot worse. The Binance/FTX deal is not done. It might not happen. There is a lot to unwind here and there is going to be substantial backlash. 2. We don't really know Alameda's counterparties. Rumors suggest a massive hole fueled by massive borrowing. That means that there are potentially more failures to come.

Saez and Zucman, a running thread... Point/counter-point