Discuss Bitcoin and large-scale macroeconomics

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Bitcoiners with a macroeconomic perspective discuss the current state of the economy, Bitcoin futures ETFs and more.

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In this episode of Bitcoin Magazine’s “Fed Watch” podcast, Christian Keroles and I met Sam Rule for the first time. Rule is a new addition to the team at Bitcoin Magazine, who research and write about their Deep Dive letters and series. His areas of interest are the macro and long-term debt cycles. So we covered topics such as monetary policy versus fiscal policy, reducing the Federal Reserve, inflation versus deflation, the consumer price index (CPI), the labor market and bond markets.

Rule provided a great slideshow of graphics that we focused on for much of the discussion, you can find them here or at the link below, or watch on YouTube. If the link does not appear where you read these notes, please find that episode’s post on BitcoinMagazine.com.

Monetary Vs. Tax policy

Our discussion began with a recap of Ray Dalio’s long-term debt cycle, and Rule applied it to our current situation. He pointed out the phases of the cycle, currently putting us on an inflationary pulse ahead of a terminal deflationary decline. He is familiar with all the macroeconomic statistics and measures that show that the economy is slipping into a period of high inflation.

Rule referred to a famous speech by Stanley Fischer, Vice Chairman of the Fed, in 2015, in which he called for using fiscal policy when monetary policy faces the lower zero bound (ZLB). We see the US government spending a lot more money trying to strengthen the effect of monetary policy. I asked him if he thought this coordination was explicit or unforeseen, to which he replied that it could be both. Fed Chairman Jerome Powell has explicitly called for budget support, but this support must result from a very complicated legislative process.

Jerome Powell and the Federal Reserve will they decrease?

The next topic we looked at was the next Fed slowdown. It’s almost guaranteed this will happen in November, but we asked Rule if he sees any imminent issues with this. Our discussion identified the Fed between a rock and a hard place, a no-win situation. If Powell shrinks and the economy worsens than it already is, that will be seen as a major political mistake. However, if he goes back on this reduction promise, it could also undermine confidence in the Fed. Rule said a cone was coming, it was signaled ahead of time and they won’t turn around now.

CPI and labor charts

Then it was time to dive into the charts. I’ll include a few here, but please check out the linked slide set above and below.

Source: Bianco Research

Rule walked us through this thought-provoking representation of the IPC, as components related to energy, non-reopening and reopening. That’s the real core of this episode, and we’ve had a long conversation about this graphic.

Source: Zillow Economic Research

This graph shows the increase in rents, but month-to-month (MoM0 rate of change decreasing. Rule asked the relevant question: “Does the MoM rate drop signal that inflation? cools down? “

Source: BLS

Here we see the wage rate rising, which is one of the main metrics economists look to when examining whether a period of inflation is sustainable or not. If wages increase, people can afford higher prices and the cycle of price increases can continue.

Source: BLS

But when one associates the small increase in wages with the decline in the participation rate, it is difficult to conclude on the net change in wages in the economy. If fewer people are working, but those who are are paid more, what is the net change? If this net change is negative or flat, the economy cannot support higher prices represented in the CPI, so they will be rejected and the next period of disinflation will begin. If the net change is positive, higher prices could be sustainable.

There are a lot more graphics in his slideshow. I really encourage you to check them out.

ETF Bitcoin Prices and Futures

Rule has written great content for Bitcoin Magazine, and a few of his recent articles have focused on bitcoin futures and new futures-based exchange-traded funds (ETFs). We couldn’t let him go without talking about it as well. So we ended the show by choosing his brain over the bitcoin ETF and how he sees the big picture.

Rule is not a fan of futures based ETFs as they have a spread against the underlying bitcoin, and therefore more risk. He has a holistic understanding of the forces at work in this relationship and is concerned (in my words) about the rise of various less efficient transactions, like cash and carry, hindering price discovery.

Our last comments were on bitcoin as collateral, which is one of my favorite topics, and some developments on that front. Of course, bitcoin collateral will go a long way in strengthening balance sheets and reducing the reshuffle chain of someone else’s liability that characterizes the current system.

Connections

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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