“Fed Watch” is a macroeconomic podcast that is true to the rebellious nature of bitcoin. In each episode, we question mainstream and Bitcoin narratives by looking at current events in macroeconomics around the globe, with a focus on central banks and currencies.
In this episode, CK and I broke down several charts, including bitcoin, the dollar, European energy, and US gasoline futures. Next, I read through a few articles and mentioned the complicated financial situation in China. Finally, we look at the big deal with Zoltan Pozsar’s latest dispatch on “Chussia”.
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Complicated financial situation in China
As CK said in this episode, “we learned about the situation in China early on.” We pointed to deteriorating conditions months before other macro podcasts. While they’re still screaming about “inflation!”, we’re talking about the geopolitical and geoeconomic elephant in the room, China.
In this episode, I gave a quick update this week on new measures being rolled out by the Chinese Communist Party (CCP) to tackle the credit crisis that’s raging there. The main idea, of course, is that it’s trying to fight a debt trap with more debt.
I have read parts of a few articles. The first day, this is from Global Times, which details some of the 19 new measures it is adopting. And guess what, it’s more debt:
Among the 19 new policy measures is the addition of more than 300 billion yuan ($43.68 billion) in quotas for policy and development financial instruments, and the green light for companies. Central power generation, among others, issued 200 billion yuan of bonds. “
Second article, this one one from Bloomberghas seen several uses for the estimated $1 trillion in infrastructure spending:
“Beijing is generating 6.8 trillion yuan (about $1 trillion) in government funds for construction projects, according to Bloomberg calculations based on official announcements. Total spending could even be higher than that – three times that amount, by some estimates – once bank loans and corporate funds are added. “
The article is interesting because it happily skims over what the Chinese are likely to spend money on:
- “More renewables than Europe” (great for Europe, right?)
- “The longest water tunnel in the world”
- “From scattered concrete to a greener city”
- “More than twice the world’s high-speed rail”
To show that these efforts aren’t as effective as they claim, I dived into a few points on the podcast.
First, the water situation in China is terrible. They only have about 1/5 of the water available to each person in the world. Its massive water projects over the past decade have fallen short of the reports I’ve seen. All of the hundreds of billions spent on these water supply projects are estimated to increase water availability by 122 billion cubic meters, or 100 cubic meters per person per year. That’s a lot, but only increases the amount of water per capita from about 400 cubic meters per person to 500.
For high-speed rail, the number of high-speed railways already in the country is causing great financial troubles, because it was not very profitable. This expansion is seen as a huge waste of money, rather than an efficient use of debt as it is supposed to be.
For example, the Bloomberg article says, “The most ambitious person [new high speed rail line] is a 1,629 km long road from Sichuan province in the southwest to the Tibetan capital Lhasa, climbing more than 3,000 meters through earthquake and glacier prone terrain.
This sounds unprofitable and very risky to be destroyed by those earthquakes and glaciers. It just sounds silly to use money effectively.
Latest Dispatch of Zoltan Pozsar
Much of the signal in this episode, in my opinion, is from the Zoltan Pozsar incident. I have read through some quotes from most recent dispatch about geopolitics and explain why he did it all wrong. He’s a brilliant plumbing financier, but clearly not one of those geopolitics.
The problems started right in front of him, when he tried to use these three pillars of analysis as if they had a cause. In fact, they are caused by more basic items:
- Cheap immigrant labor to the US
- Cheap Chinese goods to the US
- Cheap Russian natural gas to Europe
However, the problem here is in the sentence right before he lists these three things. “Global supply chains work only in peacetime, but not when the world is at war, be it a hot war or an economic war,” he said.
So that’s it? Peacetime or cheap stuff is more fundamental? It was definitely peacetime. In the podcast, I outline three pillars of the past 50 years of increasing globalization and trade:
- Peace and free trade, with respect for international organizations
- Effective opportunities for credit, i.e. low credit saturation
- Credit-based money, highly elastic money to expand into all productive opportunities
It is a mistake to think of the past 50 years as a “low inflation” environment. To be sure, CPI around the world is on the low side, because productivity has grown so quickly while prices have remained stable. But credit (money) was expanding rapidly. This is truly the era of money printing.
Now, like a drug addict with a decreasing dose of the drug, the system is now less inflationary with deflationary pressures dominating. We are now entering the post-credit expansion phase. Literally this is the era of deflation, CPI is scary.
In the podcast, I tied bitcoin back to these pillars. What we are looking at today is a systematic breakdown of my three pillars. Peace is breaking as evidenced by Ukraine and other Global Spring events taking place today. The global economy has become saturated with credit, with no economically viable (or at least relatively few) uses left. These two will lead to the last pillar, credit based money pressured into a new form of money, commodity back or sound money, bitcoin being the best modern choice.
I get more from Pozsar after this in the show. Specifically, his view is that Russia and China (“Chussia”) are a match made in the sky, with Russia as the major resource producer and China as the world’s factory. The only thing he forgets is the end consumer. You cannot simply detach yourself from the consuming half of the global economy and expect everything to go well.
Either way, you’ll have to listen to those catchy stuff at the end.
This is a post by Ansel Lindner. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.