Empty credit will turn into Bitcoin – Bitcoin Magazine
“Fed Watch” is a macroeconomics podcast, true to bitcoin’s insurgent nature. In each episode, we question mainstream and Bitcoin narratives by examining current events in macroeconomics from around the world, with an emphasis on central banks and currencies.
In this episode, CK and I break down some charts including bitcoin, dollar, European energy and US gasoline futures. I then read through a couple of articles and considered the complicated economic situation in China. Finally, we examine what the big deal is about Zoltan Pozsar’s latest dispatch on “Chussia”.
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Complicated economic situation in China
As CK said during this episode, “we were early on with the situation in China.” We called out the worsening conditions there months before other macro podcasts. While they were still shouting about “inflation!”, we were talking about the geopolitical and geoeconomic elephant in the room, China.
In this episode, I gave a quick update for the week on what new measures are being rolled out by the Chinese Communist Party (CCP) to deal with the imploding credit crunch there. Of course, the main idea is that it’s trying to fight a debt trap with more debt.
I read parts of a couple of articles. First this one from Global TIMEs, which describes some of the 19 new measures it is implementing. And guess what, there’s more debt:
“Among the 19 new policy measures was the addition of more than 300 billion yuan ($43.68 billion) in quotas for policy and development financing instruments, and a green light for, among other things, key power generation companies to issue 200 billion yuan in bonds.”
The second article, this one from Bloomberg, went through some of the uses for the estimated $1 trillion in infrastructure spending:
“Beijing is making 6.8 trillion yuan (about $1 trillion) of state funds available for construction projects, according to Bloomberg calculations based on official announcements. Total expenses could be even higher than that – three times as much, by some estimates – when bank loans and corporate funds are added.”
The article is interesting because it happily goes through what the Chinese are likely to spend the money on:
- “More renewable energy than Europe” (worked well for Europe, didn’t it?)
- “The world’s longest water tunnel”
- “From concrete spreading to greener cities”
- “More than double the number of high-speed rails in the world”
To show that these efforts are not as highly productive as they claim, I went through a few points in depth on the podcast.
First, the water situation in China is dire. They only have about a fifth of the water available per person around the world. Its massive water projects over the past decade have failed from the reports I’ve seen. All these hundreds of billions in spending on water projects are estimated to increase the amount of water available by 122 billion cubic meters, or 100 cubic meters per person per year. That’s a lot, but only increases water availability per capita from about 400 cubic meters per person to 500.
As for the high-speed rail, the amount of high-speed rail already in the country is causing major financial problems, because it is already very unprofitable. This expansion is destined to be a colossal waste of money, not a productive use of debt as thought.
For example, the Bloomberg article says: “The most ambitious [new high speed rail line] is a 1,629 km long line from Sichuan province in the southwest to the Tibetan capital Lhasa, climbing more than 3,000 meters through earthquake-prone terrain and glaciers.”
This sounds unprofitable and very risky to be destroyed by these earthquakes and glaciers. It just sounds silly as a productive use of money.
Zoltan Pozsar’s last dispatch
The bulk of the signal in this episode is, in my opinion, from the Zoltan Pozsar breakdown. I read through several quotes from his latest dispatch on geopolitics and explain why he is wrong. He is a brilliant economic plumbing expert, but obviously not one in geopolitics.
The problems start right up front as he tries to use three pillars for this analysis as if they are causative. In reality, they are caused by more fundamental elements:
- Cheap immigrant labor to the USA
- Cheap Chinese goods to the USA
- Cheap Russian natural gas to Europe
The problem here, however, lies in the sentence just before he lists these three things. He states, “Global supply chains only work in peacetime, but not when the world is at war, whether it’s a hot war or an economic war.”
So what is it? Is peacetime or cheap stuff more fundamental? It is definitely peacetime. In the podcast, I offer my three pillars of the past 50 years of increasing globalization and trade as the following:
- Peace and free trade, together with respect for international organisations
- Productive opportunities for credit, i.e. low credit saturation
- Credit-based money, highly elastic money to expand to all productive possibilities
It is a mistake to think that the last 50 years have been a “low inflation” environment. Sure, CPIs around the world were low, because productivity increased so quickly that prices remained stable. But credit (money) expanded rapidly. This was literally an era of money printing.
Now, like an addict with shrinking doses of the drug, the system is now less inflationary with deflationary pressures dominating. We are now entering the extension period after credit. Literally, this is a deflationary era, CPI be damned.
In the podcast, I linked bitcoin back to these pillars. What we are looking at today is a systemic breakdown in my three pillars. Peace is breaking down, as evidenced by Ukraine and other Global Spring events happening today. The global economy has become saturated with credit, leaving no economically productive uses (or at least relatively few). These two things will cause the last pillar, credit based money to be pushed into a new form of money, back to commodity or sound money, bitcoin is the best modern choice.
I got more from Pozsar after this at the show. Especially his point that Russia and China (“Chussia”) are a match made in heaven, with Russia as a major resource producer and China as the world’s factory. The only thing he forgets is an end consumer. You can’t just cut yourself off from the consumer half of the global economy and expect things to work out.
Anyway, you have to listen for the juicy stuff at the end.
This is a guest post by Ansel Lindner. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
