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Brandon Green: Yes, there are other things. There are other questions I’m thinking about. Another might be, as you’re starting to look at politicians getting more and more involved in space, one thing that’s going to be fascinating is who, who are our true friends without quotes, right?
It’s easy to come out and support Bitcoin. It is growing and exploding and you, the politician, can see dollar signs in publicly reporting it. It’s another thing when we’re in a bear market and it’s not the sexy thing, and it’s not even popular to talk about it right now. Will they still come out and defend him?
I do not know. My gut says probably not. I think maybe you did [Cynthia] Lummis, maybe there are a couple more who like it, actually care about Bitcoin, but I’d say for the most part they’re just there to get more votes and figure out how to cooperate with our movement. I think it will be another interesting thread.
The most important thing that I am paying particular attention to for Bitcoin is the resolution of the macroeconomic crisis that we have thrown ourselves into. And this is something I was talking about a little while ago on the Twitter space. You have a scenario right now where the EU hangs in the balance of fading.
There is no other way to play it. You really have two factions. You have the “PIGS” countries: Portugal, Italy Greece and Spain, Ireland sometimes gets thrown there. They are all relative importers, as if they import more than they export. They are very much in debt.
Many times these are the countries that were basically saved by Super Mario Draghi after the great financial crisis of 2008. If I didn’t, it looked like the EU might fall. And in the end it happened that the European Central Bank said: “Okay, we’ll just buy the debt of all these southern European countries and basically become a backstop.”
They continued to do so. The ECB is defending the southern EU countries and that’s okay – it was okay – because the EU was a net exporter. And so because of that, you still had demand for the currency coming from overseas. With the entire gas crisis in Russia, where Germany and other countries were cut off from Russian gas, their energy costs have risen so much that it has effectively wiped out their net exports. Now, Germany too, and all these other countries are now also net importers, which has brought down the demand for the euro.
You have seen that the euro has reached parity with the dollar before. You are actually looking at a scenario where the euro itself is weakening. The problem with the ECB is that it really only has one mandate, which is to maintain the stability of the euro. It is not to protect the whole EU and prevent its dissolution.
There is this that begins to form these perverse incentives where if they want to protect the euro, it means to increase [interest rates]. But if they raise rates and block the purchase of debt from southern countries, that would protect the value of the euro. This way, you raise your rates, stop printing money.
So you come across a scenario where no one is buying the debt of the PIGS nations. And at that point, they’re defaulting on their debts, and if the PIGS nations default on their debt – again, this is Portugal, Italy, Greece, and Spain – you’re running into a problem where they have to rename to their own currency, then they can actually print their way and swell to get out of it.
This is their only choice and it’s starting to happen. The ECB actually raised rates by 25 basis points last week. At the same time, you have seen Super Mario [Draghi] resign from the post of Italian prime minister. You are seeing some of the machinations of this happening right now.
This is very important to pay attention to. The alternative would be the northern countries; you have Scandinavia plus Germany, which had been the economic powerhouse – I’ll explain why this is all important with Bitcoin – but you have the economic powers that were these net exporters who are seeing inflation in the system. And they’re saying, wow, ok. We don’t want to keep printing all this money. We need to tighten so we don’t all see this rampant inflation, to support the PIGS nations. If inflation is not curved, if government spending is not stopped, then the northern countries will elect all their populous leaders, similar to how the UK did Brexite and you will see Germany and some of these countries of the north exit the EU on the other side.
The reason this is interesting to me for Bitcoin is because there aren’t many solutions for Europe. If this happens, you will see huge amounts of currencies, basically minted and printed overnight. Many people will not go back to that system of renaming their debts to a new currency.
This is also not supported by anything, right? These currencies must be derived from something and therefore Bitcoin is a huge answer for that. If that doesn’t happen, the only alternative is for someone like the US to step in and basically control the yield curve for the EU. This is not our mandate. I can tell you.
And it will get us to start printing even more money than we imagine for COVID. If we are to support the whole EU with our Federal Reserve.
P: So what would it be like? What do you mean when you say control of the EU yield curve?
Green: Let me back up. What is yield curve control? Checking the yield curve is basically your attempt to control the interest rates on a bond. And by doing so, you are effectively putting the bond payment below the inflation rate. So whoever is buying bonds says, “Okay, I don’t want to keep this bond. I’m losing money in real terms.” Then they sell it. If you sell bonds, you need a buyer. If no one is buying, rates start to rise and this raises the debt. So what the EU usually does is go in and stop it and say, “Okay, we’ll just buy all the bonds at this price level and basically check the yield curve by checking the yield on it.”
They can’t do it anymore. Because they’ve printed too much money and there’s inflation and all that kind of thing. The only person who might really be able to do something about it is [Jerome] Powell and the US Federal Reserve. If the US did that, you’d only see a massive dollar print and you’d be in the same basic macro set that took us from 2009 to the present, which you’ve seen what bitcoin has done.
So this is the other case of Bitcoin, as in both cases, it is incredibly bullish for the price of bitcoin. It just comes at the expense of stability in a place like Europe.
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