The following is an excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin magazine premium markets newsletter. To be among the first to receive this information and other on-chain bitcoin market analysis straight to your inbox, Subscribe now.
This Bitcoin Magazine Pro article is the first in a two-part series on the changing world order, its impacts on the global economy, and the future of central bank monetary policy. To conclude, we will explain how bitcoin could relate to the world we are heading towards.
These ideas build on the ideas and writings of Zoltan Pozsar and Luke Gromen.
The world is at war. While at first glance this statement may seem hyperbolic, it has become increasingly clear that the world is in the midst of an economic war that is in danger of getting “hot”.
Before diving into the intricate elements of global geopolitics, let’s first assess why, as market participants, it’s even worth analyzing. The most important thing to understand as an investor (more broadly a citizen of the world as a whole) is that the previous three decades have been a complete anomaly in the span of global history.
After the collapse of the Soviet Union, trade mobilized globally like never before, as the United States played the role of peacemaker patrolling the trade routes with its navy. This contributed to what many now call the Great Moderation.
The Great Moderation can largely be thought of as synonymous with globalization on a scale never seen before. In particular, the disinflationary environment of the previous three decades allowed real growth to persist and US financial assets to go parabolic due to low interest rate policy and seemingly endless quantitative easing programs after the Great Financial Crisis.
Treasury securities, which are simply claims on future dollars with an interest rate, have allowed nations to store their economic surplus. This system benefited sovereign actors as long as dollars, and subsequently treasuries, retained their purchasing power in real terms.
Following the invasion of Ukraine in February, the G7 countries announced the freezing of the assets of the Russian Central Bank. Remember that sovereign debt is nothing more than a promise of future payment from another nation; a liability of your counterparty.
With this decision, a clear precedent has been set. In our February monthly report, we said the following.
“The ruling basically said to all sovereign nations, especially China, ‘Your foreign exchange reserves might not be yours if you take a wrong step.'”
While speculating about the potential for a hot war to break out is not an exciting task, it is clear to those who pay attention that geopolitical tensions continue to heat up, and history tells us that conflicts are rarely something other than inflationary. Not only because of the protectionist trade policies that nations adopt, but also because of the imbalance of supply and demand that massive industrialization toward war requires.
The next piece, which will serve as the second part of this primer, will dive into the ripple effects of the energy crisis in Europe, rising geopolitical tensions globally, the gurgling of global debt markets, and the role possible future of bitcoin in a deglobalization. world.
The publication will take place after Jerome Powell’s speech in Jackson Hole, where central bankers from around the world, academics, influential economic thinkers and policy makers will discuss and address the “reassessment of constraints on economics and politics”.