Inflation, Economic Warfare, and Bitcoin

Inflation, Economic Warfare, and Bitcoin

Trigger warning… I’m about to say things that will rub a lot of people the wrong way.

Starting with: Inflation isn’t going away.

Inflation

Everyone wants to talk about the Fed interest rate hikes as if the peak is right around the corner. But, although Jerome Powell will do his best, this isn’t the 80’s, he isn’t Paul Volcker, and Biden isn’t Reagan. As food & energy prices rise and small businesses declare bankruptcy, workers continue organizing to force wages up (with the encouragement of the Biden administration) as others simply exit the workforce altogether.

As Credit Suisse strategist and former advisor to the US Treasury, Zoltan Pozsar, writes: “What oil is to an industrial economy, people are to a service economy… I can’t have a client meeting without someone asking me where all the workers have gone. I have no idea, but they are apparently gone…

… and after a while, it becomes pointless to wait for Godot.”

Supply chain shocks—namely Covid and the war in Ukraine—are the obvious culprits here, and it makes sense that the Fed is looking at cutting down demand. Keeping as much money out of circulation as possible for a little while might seem like a sensible, albeit harsh, way to avoid hyperinflation. So, we’ll have ourselves a recession. It will be painful, but on the other side of it, things will go back to normal. Right?

Wrong, says Zoltan, because none of this is a one-off. In his most recent article for Credit Suisse, which has recently gone viral, he argues the Russian war & the zero-covid lockdowns in China are harbingers of a new geopolitical order—one in which global supply chains are weaponized, and national economies survive on the whims of another nation’s fickle autocrats:

“The unfolding economic war between great powers is stochastic and not linear, and what inflation will do in the future does not only depend on the shocks that occurred in the recent past, but also on the many shocks that can happen still. These include more sanctions and the further weaponization of commodities… and further supply chain issues for cheap goods.”

The future that Pozsar describes is one where commodity and consumer good prices can soar quickly and unexpectedly, practically overnight, based on nothing but the whims of Putin or Xi Jinping. In that future, the Fed will still be hiking interest rates—perhaps to enormous levels—in an attempt to mitigate the effects, and there’s no guarantee that it will work.

Thankfully, this is what Bitcoin was invented to do.

In his whitepaper in 2009, the mysterious, pseudonymous inventor of Bitcoin "Satoshi Nakamoto" said that it was the financial crisis of 2008 that inspired him to invent the cryptocurrency. It was our dependence on centralized institutions, he said, with the ability to create and issue currency out of thin air, and the inherent vulnerability of those institutions, which was the major problem to be solved in our time.

Today, we’re seeing that vulnerability play out in real time. And through all the run-ups, crashes, and bloody “crypto winters,” one thing has remained true throughout it all:

There is no better hedge against inflation than crypto.

‍