This is a transcribed excerpt of the “Bitcoin Magazine Podcast” hosted by P and Q. In this episode, Brandon Green will join them to talk about how bullish the European debt crisis is for bitcoin.
Listen to Episodes Here:
Brandon Green: Yes, there are other things. There are other questions that I am thinking about. Another issue would be, as you start to observe politicians getting more and more involved in the space, one thing that’s going to be very interesting is like who, who are our real cite friends, right?
It’s easy to launch and support Bitcoin. It’s growing and booming and you, the politician, can see the dollar’s sign in publicly signaling it. It’s another thing when we’re in a bear market and it’s not a sexy thing, and it’s not even common to talk about it at the moment. Will they still come out and defend it?
I do not know. My gut says probably not. I think maybe you have [Cynthia] Lummis. I think that would be another interesting topic.
The biggest thing that I pay particular attention to for Bitcoin is the resolution of the macroeconomic crisis that we have caused ourselves. And this is what I talked about a while ago on the Twitter space. You have a scenario right now where the EU is worried about dissolution.
There is no other way to play it. You really have two factions. You have the “POR” countries: Portugal, Italy, Greece and Spain, Ireland is sometimes included. They are all relative importers, like they import more than they export. They are heavily in debt.
A lot of times these are the countries that were essentially bailed out by Super Mario Draghi after the great financial crisis in 2008. If you hadn’t done that, it looks like the EU could have collapsed then. And what ended up happening was that the European Central Bank said, “Okay, we’re just going to buy debt from all these Southern European countries and basically go back.”
They have continued to do that. The ECB is backing the southern EU states and that’s fine – that’s okay – because the EU is a net exporter. And so you still have a need for foreign currency. With the Russia-wide gas crisis, where Germany and other countries cut off Russian gas, their energy costs increased so much that it actually wiped out their net exports. Now, even Germany and all other countries are net importers, which has reduced demand for the euro.
You’ve seen the euro hit parity with the dollar before. You are really looking at a scenario where the euro itself is weakening. The problem with the ECB is that it really has only one mission, which is to maintain the stability of the euro. It is not to protect the whole EU and prevent it from disintegrating.
This begins to form these false incentives, where if they want to defend the euro, that means increasing [interest rates]. But if they raise interest rates and they stop buying debt from southern countries, this will protect the value of the euro. That way you increase the rate, you stop printing money.
Then you run into a scenario where no one buying PIGS owes ‘country’. And at that point, they default, and if the PIGS countries default – again, this is Portugal, Italy, Greece and Spain – you have a problem that they need to convert. with your own currency. that they can really print their way and hype their way.
It was their only choice and that was starting to happen. The ECB actually raised interest rates by 25 basis points last week. Also, have you seen Super Mario [Draghi] resigned as prime minister of Italy. You’re seeing some plot of this happening right now.
This is very important to pay attention to. The replacement will be the northern countries; you’ve got Scandinavia plus Germany, which used to be an economic powerhouse – I’ll explain why all of this matters to Bitcoin – but you have the economic powerhouse these net exporters are seeing inflation in the system. And they’re saying, wow, okay. We don’t want to keep printing all this money. We need to tighten even more so that we all don’t see this rampant inflation, to support HOR countries. If inflation doesn’t come down, if government spending isn’t stopped, then the northern states will elect their own populous leaders, similar to how the UK Brexited and you’ll see Germany and some of these northern countries exit to the other end of the EU.
The reason why this is interesting to me for Bitcoin is that there are not many solutions for Europe. If that happens, you will see a large amount of currency, essentially minted and printed overnight. Many people will not return to the system of redefining their debts on a new currency.
That’s also not supported by nothing, is it? These currencies need to be rooted in something and so Bitcoin is a huge answer to that. If that doesn’t happen, the only alternative is to have someone like the US come in and essentially control the yield curve for the EU. That is not our duty. I can tell you that.
And it will cause us to start printing more money than we ever imagined printing COVID. If we had to support the whole EU with our federal reserves.
P: And what will it be like? What do you mean by EU yield curve control?.
Green: Let me back up. What is yield curve control? Yield curve control is essentially your attempt at controlling interest rates on a bond. And by doing that, you actually put that bond payment below the inflation rate. So anyone buying a bond will say, “Okay, I don’t want to hold this bond. I am losing money realistically.” Then they sell it. If you sell bonds, you need a buyer. If no one buys, then the rate starts to rise and that makes the debt higher. So what the EU usually does is they go in and block it and they say, “Okay, we’re just going to buy all the bonds at this price and basically get the yield curve under control. interest on it.”
They can’t do that anymore. Because they printed too much money and there was inflation and all this. The only one who can really do anything about it is [Jerome] Powell and the US Federal Reserve. If the United States did that, then you would see the dollar being printed massively and you would join the same basic set of macroeconomics that has had us from 2009 to this day, which you saw what bitcoin did.
So it’s another case of Bitcoin, the same way you analyze this, which is extremely bullish for the bitcoin price. It’s just, it comes at the expense of stability somewhere like Europe.