A European debt crisis is bullish for Bitcoin – Bitcoin Magazine
This is a transcribed excerpt of the “Bitcoin Magazine Podcast”, hosted by P and Q. In this episode, they are joined by Brandon Green to talk about how the European debt crisis is bullish for bitcoin.
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Brandon Green: Yeah, there are other things. There are other questions on my mind. Another thing would be, as you start looking at politicians who are more and more involved in space, one thing that’s going to be fascinating is who, who are our real friends from quote, right?
Getting out and supporting Bitcoin is easy. It’s growing and it’s exploding, and you, the politician, can see the dollar signs signaling it publicly. It’s another thing when we’re in a bear market and it’s not the sexy thing and it’s not even popular to talk about at the moment. Do they still come out and defend it?
I do not know. My gut probably says no. I think maybe you have [Cynthia] Lummis, maybe there are a couple of others who like, actually care about Bitcoin, but I’d say for the most part, they’re just there to get more votes and figure out how to partner with our movement. I think it will be an interesting thread.
The biggest thing I’m noticing specifically for Bitcoin is the solution to the macroeconomic crisis we’ve thrown ourselves into. And this is something I talked about on Twitter a little while ago. You have a scenario right now where the EU is about to disintegrate.
There is no other way to play it. You basically have two factions. You have the “PIGS” countries: Portugal, Italy Greece and Spain, Ireland is sometimes thrown in there. They are all relative importers, as if they import more than they export. They are high in debt.
Many times these are the countries that were basically bailed out by Super Mario Draghi after the great financial crisis of 2008. If you hadn’t done that, it looked like the EU might have collapsed then. And what ended up happening is that the European Central Bank said, “Okay, we’ll just buy the debt of all these southern European countries and basically become a backstop.”
They have continued with that. The ECB stands up for the southern countries of the EU and that’s fine – it was fine – because the EU was a net exporter. And because of that, you still had demand for the currency from abroad. With the whole Russia gas crisis where Germany and other countries were cut off from Russian gas, their energy costs crept up so much that it actually wiped out their net exports. Now Germany even, and all these other countries are now also net importers, which has caused a demand for the euro to fall.
You saw the euro hit parity with the dollar earlier. You are actually looking at a scenario where the euro itself weakens. The problem with the ECB is that it really only has one mandate, which is to maintain the stability of the euro. It is not to protect the entire EU and prevent it from dissolving.
It starts to form these perverse incentives where if they are going to protect the euro, that means raising [interest rates]. But if they raise interest rates and they stop buying debt from southern countries, that will protect the value of the euro. By doing that you raise prices, you stop printing money.
Then you get into a scenario where nobody buys the debt of the PIGS nations. And at that point they default on their debt, and if PIGS nations default on their debt – again, this is Portugal, Italy, Greece and Spain – you run into a problem where they need to renominate in their own currency so that they can actually write out and blow your way out of it.
It’s their only choice, and it’s starting to happen. The ECB actually raised interest rates by 25 basis points last week. At the same time you were watching Super Mario [Draghi] resign as Prime Minister of Italy. You are seeing some of the indications of this happening right now.
This is very important to be aware of. The alternative would be the northern countries; you have Scandinavia plus Germany, which had been the economic powerhouse—I’ll explain why all of this matters with Bitcoin—but you have the economic powerhouses that have been these net exporters that are seeing inflation in the system. And they say, wow, okay. We will not continue to print all this money. We need to tighten up so that we don’t all see this rampant inflation, to support the PIGS nations. If inflation is not curbed, if government spending is not stopped, the northern countries will all elect their own populist leaders, similar to how Britain exited Brexit, and you will see Germany and some of these northern countries exit the EU on the other end .
The reason this is interesting to me for Bitcoin is because there aren’t many solutions for Europe. If that happens, you’ll see massive amounts of currency, basically minted and printed overnight. Many people are not going to go back to that system of redistributing debt into a new currency.
It’s also backed by nothing, right? These currencies have to be derived from something, and so Bitcoin is a big answer to that. If that doesn’t happen, the only option is for someone like the US to step in and basically do yield curve control for the EU. That is not our mandate. I can tell you that.
And that will cause us to start printing even more money than we imagine printing for COVID. If we have to support the entire EU with our federal reserve.
P: And what would that look like? What do you mean when you say yield curve control by the EU?.
Green: Let me go back. What is yield curve control? Yield curve control is basically your attempt to control the interest rates on a bond. And by doing so, you actually set the bond payout below the rate of inflation. So everybody who buys bonds is like, “OK, I don’t want to keep this bond. I’m losing money in real terms.” Then they sell it. If you sell bonds, you need a buyer. If no one buys, prices start to rise, and that causes the debt to go higher. So what the EU usually does is they step in and stop it, and they say : “Okay, we’ll just buy all bonds at this price level and basically control the yield curve that controls the yield on it.”
They can no longer do that. Because they printed too much money and there’s inflation and all that. The only person who can really be able to do something about it is [Jerome] Powell and the US Federal Reserve. If the US did that, you’d just see massive printing of the dollar and you’d get into the same basic macroeconomic set that got us from 2009 to today, as you’ve seen what bitcoin has done.
So that’s the other case of Bitcoin, which however you slice it, is incredibly bullish for the price of bitcoin. It’s just, it comes at the expense of stability in a place like Europe.
