All Roads Lead to Bitcoin
Could the Fed's dilemma be good news for Bitcoin? Learn why the path of least resistance may lead to a bullish setup.
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The Fed’s Dilemma
As the Fed is raising interest rates, I am of the opinion that the current level of debt and the shortage of buyers will soon necessitate a reversal of course.
The market is already anticipating this shift. Bond yields are decreasing as investors brace for an eventual rate cut. With diminishing returns on investment, there will soon be insufficient buyers. As a result, bond yields won't outpace inflation, rendering them unattractive investments.
The present cost of servicing the $30 trillion debt at our current 5% interest rate is $1.5 trillion annually. This enormous sum is paid for by taxpayers through our tax dollars and by inflation, which affects dollar holders.
To put things into perspective, the US currently collects roughly $3.5 trillion in taxes annually. This implies that 42% of our budget is allocated to paying off debt. How can we sustain this trend in the long run?
The Fed is aware that it cannot keep rates high indefinitely. With inflation fears subsiding and a glimmer of hope emerging, the Fed is in a position to pause and lower rates once more. I have been advocating for this policy shift from the outset.
Over-indebted individuals often lose faith in the system. Why should bondholders take a 30-year risk on an unsustainable Ponzi scheme like the U.S. dollar?
When buyers dwindle, the Fed is compelled to intervene by increasing yield through rate cuts. The most plausible outcome is that the Fed will buy bonds from the treasury by printing new money, resulting in inflation over time.
It is a fundamental truth that humans respond to incentives.
“Show me the incentive, and I’ll show you the outcome.”
Charlie Munger
However, excessive money printing to offer bondholders the returns they demand may lead to a situation where they sell their bonds. This exacerbates the imbalance, creating more debt than demand.
Rates will eventually drop, leading to an increase in the number of people selling their bonds in search of better returns, creating a vicious cycle. Although few people are considering this prospect currently, I believe it will happen sooner than later.
As always, it pays to stay ahead of the curve. This ‘pivot’ or reversal from the Fed, combined with the next crisis of some kind, will result in unprecedented money printing that we have never witnessed before, leading to a loss of currency value.
The Global End Game
It is worth noting that everything is interconnected, indicating that this trend is likely to play out globally rather than locally. Since the US is the reserve currency's superpower, they can export inflation to other countries with dollar-denominated debt, which creates international demand for our "shitcoin."
While I support the "Dollar Milkshake Theory," which posits that the dollar is the catalyst that causes fiat worldwide to decline in value, the fact remains that all fiat systems are eventually susceptible to decline.
What is the asset to own during such times of economic turbulence? In a world of exponential growth in technology and artificial intelligence, where abundance is plentiful and there is no limit to the amount of currency that can be printed, what is the one asset that cannot be inflated, whose supply is fixed and stable?
I invite you to ponder this question and consider where to invest your resources wisely.
Thank you for taking the time to read my thoughts on the Fed's dilemma and the global economic situation. It is my hope that this article has provided valuable insights and inspired you to take action to safeguard your financial future.
Until next time, stay curious and stay ahead of the curve! How are you placing your bets?
Alec