24th March 2024 > > US debt & Cathie Woods.

tl;dr

US debt is a convincing argument to own BTC. Cathie Woods follows up with another convincing argument to own BTC.

Market Snap

Market Wrap

Yield curve inversion in the US – the best indicator of an incoming recession – is on its longest streak ever, with no sign of an impending recession, quite the opposite. So, what’s going on? I believe the yield curve is pricing the risk of a return to QE – see below.

Curious Cryptos’ Commentary – US Debt

If I ever need cheering up, this is usually my first port of call:

https://www.usdebtclock.org/

What is amazing is how quickly each $1mm of additional debt racks up. I timed it (you know what I am like) – it takes 30 seconds. $2mm extra dollars of debt every minute. This is utterly unsustainable.

When we look at the total of $34 TRILLION of debt, this is an unimaginably large number. I refer you once again to my favourite graphic explaining just how large is one TRILLION dollars:

https://frankumstein.com/PDF/What%20does%20one%20TRILLION%20dollars%20look%20like.pdf

If pictures aren’t your thing, Curious Cryptos’ CTO Nick Illston has an alternative explanation:

If I give you £30k a day, how long does it take to get to £1m?

33 days! A month to become a millionaire. Easy!

But how long does it take to become a billionaire using the same exercise?

It takes 91 years!  That is a big difference.

And a trillion? 91 thousand years.

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What is obvious is that this debt can never be paid back. US government spending will never be cut in any meaningful sense (and I make no judgement whether it should be cut or not, I am just stating a fact) and no amount of economic growth can ever close the gap on the fiscal deficit. Total liabilities are now over $635,000 per person in the US and climbing. This is insane, but one thing we know for sure.

Total government debt for the US is destined to rise inexorably for ever more. Until it can’t, and that is going to be a bigger economic and social problem than we have ever seen before.

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Now don’t get me wrong. This isn’t schadenfreude that puts a smile on my face. I am truly concerned for those people who will get hurt badly at the point when this experiment in excessive fiscal incontinence – which is being copied around the world – goes horribly wrong.

We have already seen that QE in open economies does not result in inflation, the traditional get-out clause for over-extended governments. Fiat currencies can only be devalued versus the debt (aka inflation) by shutting down the world, and ramping up QE. The former will never happen again.

But as we now know from years of experience that QE does not cause inflation in open economies, then two things flow from that.

The first is that control of interest rates will revert to the politicians we vote for. This nonsense about central banks having inflation targets to achieve will be consigned to the most appropriate place for it. The bin.

I don’t agree that politicians should decide interest rates – it should be left to the markets – but it is better in their hands than the technocrats of central banks. If you don’t like the interest rate policy of the government, you can vote to change it. Who of us got to decide that Mark Carney and Andrew Bailey would be allowed to run riot with our finances? You might say that the governor of the Bank of England is appointed by the government of the day, but I don’t recall ever seeing a manifesto commitment to appoint Carney. If I had, you can be very sure that a party that did that would never have my vote.

When politicians regain partial control of their destiny by owning interest rate decisions (ditching disastrous constructs such as the OBR would help enormously in that regard as the next government is going to find out), they will of course bring back QE, and sharpish. And this is why QE is heading back our way. It keeps the interest paid on an ever-increasing debt pile close to zero or even – as Switzerland and Japan experienced at the long end of the curve – negative. Some corporates issued negative yielding zero coupon bonds in the last ten years.

There is only one way to protect your wealth when the next onslaught of QE is unleashed upon us. That is to own hard assets – property, gold if you must, growth stocks, and of course BTC.

Curious Cryptos’ Commentary – Go Cathie!

Cathie Wood, Ark Invest CEO, has never been shy about trumpeting her support for all things crypto, probably a key reason for her status in the top 100 wealthy people.

It seems that apart from that specific point, we have more in common than we thought.

Cathie now predicts that institutional investors will allocate 5% of their portfolios to BTC, a figure I have long trumpeted.

Using that as a base, the CCC’s prediction for the price of 1 BTC is $1.2mm. Cathy uses a different method to me, coming up with a whopping $3.8mm.

My initial timescale was the latter half of this decade, Cathie’s is 2030.

I do hope Cathie’s price forecast is more accurate than mine.