Energy, Currency and Deglobalization Warning Signs – Bitcoin Magazine
Below is an excerpt from a recent issue of Bitcoin Magazine Pro, Bitcoin Magazine premium market’s newsletter. To be among the first to receive this insight and other market analysis on the bitcoin chain straight to your inbox, Subscribe now.
This Bitcoin Magazine Pro article is the first in a two-part series on the changing world order, its impact on the global economy and the future of central bank monetary policy. To conclude, we will elaborate on how bitcoin can be linked to the world to which we are transitioning.
These ideas piggyback on the ideas and writings of Zoltan Pozsar and Luke Gromen.
The part:
The world is at war. Although this statement may at first sound hyperbolic, it has become more and more obvious that the world is in the midst of an economic war that is in danger of becoming “hot”.
Before diving into the complex elements of global geopolitics, let’s first consider why as market participants it is worth our time to analyze. The most important thing to understand as an investor (more generally a global citizen at large) is that the previous three decades were a total anomaly in the span of global history.
After the collapse of the Soviet Union, trade mobilized on a global scale unlike anything before, as the United States played peacemaker patrolling trade routes with its navy. This contributed to what many now refer to as The Great Moderation.
One can broadly think of The Great Moderation as a synonym for globalization on a scale never seen before. In particular, the disinflationary environment of the previous three decades allowed real growth to persist and US financial assets to go parabolic on the back of low interest rates and seemingly endless quantitative easing programs after the Great Financial Crisis.
Treasury bonds, which are simply claims on future dollars with an attached interest rate, allowed nations to store their economic surplus. This system benefited sovereign stakeholders as long as dollars, and later treasuries, maintained purchasing power in real terms.
After the invasion of Ukraine in February, the G7 countries announced the freezing of the Russian central bank’s assets. Remember that national debt is nothing more than a promise of future payment by another nation; a responsibility for your counterparty.
With this move, a clear precedent was created. In our monthly report for February we said the following.
“The move essentially told all sovereign nations, especially China, ‘Your foreign exchange reserves can’t be yours if you make a wrong move’.”
While speculating on the potential for hot war to break out is no exciting task, it is clear to those paying attention that geopolitical tensions continue to heat up, and history tells us that conflicts are rarely anything but inflationary. Not only because of the protectionist trade policies that nations take on, but also because of the imbalance between supply and demand that massive industrialization against war requires.
Knock-on effects
The next piece, which will serve as part two of this primer, will delve into the fallout from the energy crisis in Europe, rising geopolitical tensions globally, gurgling global debt markets, and the possible future role of bitcoin in a deglobalizing world.
The release will take place after Jerome Powell’s speech in Jackson Hole, where central bankers from around the world, academics, influential economic thinkers and policy makers will discuss and address “Reassessing Constraints on the Economy and Policy”.
