U.S Consumer Price Inflation hit 7.9% for February 2022, Highest in 40 years
While this historic February year-over-year CPI print of 7.9% was in line with estimates, we would have to go back to 1981 to see a print this high. Month-over-month inflation also rose to 0.8%.
One thing many analysts are ignoring is the fact that this data does not reflect the recent surge in energy, gas and commodities we've seen following Russia's invasion of Ukraine. With gas also hitting historic numbers, we may very well see a March CPI in double digits.
Along with a flattening yield curve and doubling of oil prices signaling a recession, these high inflation numbers puts the Federal Reserve in an extremely tough position.
On one hand, we've seen them step in and save markets since 2008, injecting liquidity following market corrections and potentially staving off deep recessions. On the other hand, doing so again before hiking rates, and attempting QT would absolutely obliterate any shred of credibility they have left. After all, the Federal Reserve's mandate is to maximize employment and create stable prices.
What does this mean for the average America? Likely more pain. We may see a scenario where their food and gas prices continue to rise while their assets are falling, and job growth slows or halts.
If tax receipts begin to fall due to the above scenario, the US government then has an issue with keeping up with its entitlements and defense spending. Will they cut spending on Medicare, Social Security, Welfare, Unemployment and/or Defense Spending with a recession and looming Russian war crisis?
Of course, all of this may be politically unviable in an election year. The only long term options are equally politically unviable or they can opt to kick the can down the road further. To recap, those options would be:
Raise rates and start Quantitative Tightening during a recession
Hike taxes in an election year while people can't afford food and gas
Monetize debt and/or price controls (print money)
Due to this CPI print and the likely outrageous following print, I see the Fed enacting option 1 here, until they have to go with option 3.
What does this mean for Bitcoin? It will keep producing blocks. A sharp correction is not unlikely. With that being said, if you understand the options above, its long term prospective remains and is arguably getting clearer by the day.
Credit Suisse says we are witnessing the birth of a new monetary order.
Credit Suisse is a 166 year old bank with $1.5 trillion AUM. These statements which have been making the rounds on twitter are from former Federal Reserve and US Treasury official Zoltan Poszar, who is now Credit Suisse's short term rate strategist. There is a lot to unpack here...New world monetary order? Resurgence of commodity backed money? Bitcoin's survival...
We often hear money needing to be "backed" by something such as a commodity like gold or silver, but the truth is, the only money that needs to be "backed" are those moneys that don't have enough characteristics of "money"...This crisis of the Eurodollar is due to years and years of loose monetary policy that has eroded a key characteristic of money -- limited supply -- with continued injection of new monetary units, the fiat standard has lost its ability to hold its value, ushering in the return of a standard that does (commodity backed money). The reason we need to back our fiat currencies with commodities, instead of just using these commodities as money is because these commodities also lack key characteristics of money, most notably divisibility and portability. Gold and silver are difficult and expensive to transport, and exchange, and are not as easily divided as paper money. By combining the two you receive a commodities limited supply, with fiat's portability and divisibility.
This is where Bitcoin comes in, why Bitcoin will survive, why Poszar is right in Bitcoin benefiting, and how this crisis could lead to the West's adoption of Bitcoin. This is because Bitcoin embodies all 6 characteristics of money.
Divisibility: 1 bitcoin is divisible to 100,000,000 satoshis or 0.00000001 BTC
Durability: bitcoin is a digitally native asset, it lives on the blockchain, it can't be necessarily destroyed, only the keys which allow its transference can be lost
Portability: bitcoin can be sent peer to peer across borders at the speed of light. Private keys to your bitcoin can be stored on a hard drive, paper, steel, or even in your head, and taken with you anywhere in the world.
Uniformity: 1 bitcoin = 1 bitcoin, this can also be referred to as "fungibility", meaning the assets are interchangeable, which any bitcoin can be exchanged for another for the same value (of note, as bitcoin is digitally native, transaction history can be attached to each bitcoin, and in theory, could affect the fungibility if governments or users were to value certain bitcoin differently due to their history...in a truly peer to peer circular economy, this should have no affect)
Limited supply: There can only be 21 million bitcoin
Acceptability: Millions of people around the world value bitcoin and accept bitcoin as payment...this can and will continue to grow as the asset becomes more common place and engrained into society
For these reasons above, the West may realize as their fiat currencies are losing power, and the East begins to harness the power of commodity backed money, it may be in their best interest to cut out the middle man of "commodity backed" money. Commodities can be manipulated globally as we are seeing with the US seizing Russian gold reserves, and putting an embargo on Russian oil. Bitcoin can reduce these risks of asset seizure, not just on a personal level but on a nation state level as well. We may see the Wests adoption of Bitcoin sooner rather than later as fiat moneys begin to unravel.