The Breakdown - Corporate Socialism to Dying for the Dow: 7 Themes That Defined the Week

Episode Date: March 27, 2020

In this episode of The Breakdown, @NLW reflects on the themes that defined an absolutely wild week in global markets and society.  Those themes include: Unlimited QE - broad new powers (corporate bond buying anyone?) and an unlimited checkbook for the Fed  Digital Dollars - a surprise inclusion of a digital dollar in an early Stimulus draft shifts the Overton window Narrative Shift to “Grandma Dies For The Dow” - narrative analysis that suggests that the “just the flu” of two weeks has become “business closures will kill more than COVID” Stimulus as Corporate Socialism - a huge bailout for businesses explained away by something that Taleb says is decidedly NOT a Black Swan The Last Break of Institutional Trust - jobless claims were 4x higher than the previous record on the same day the stock market went bull again - trust in leadership is dead Surveillance - a growing concern with surveillance - such as the new CDC program earmarked in the Stimulus package Bitcoin difficulty adjustment - as Preston Pysh put it “this thing is so resilient it’s almost laughable”     

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Friday, March 27th. And for those of you were listening yesterday, I mentioned that there was going to be a really exciting guest today. That has been pushed back a week, but it's okay because I was feeling the need to actually try to almost take a step back and gather up. my thoughts on what is just another in a sequence of literally insane weeks. It feels like 2020 has been a full decade in just three months. So today's episode is going to be the seven

themes that defined the week. And maybe I'll think of a more catchy title before I actually push it live, but seven themes that define the week. So quickly I'm going to talk about unlimited QE, CBDCs, Central Bank Digital Currencies, Narrative Shift to Let Grandma Die, stimulus as corporate socialism, the lack of failure of institutional trust, surveillance, and the Bitcoin difficulty adjustment. So let's dive in. All right, so theme one, unlimited QE. There was a remarkable interview last weekend on 60 minutes with Neil Kashgari, who's a Fed Reserve president, where he effectively said, and I think I played this clip on Monday of this week, that the Federal Reserve had infinity dollars,

infinity cash to do what they needed to do. What we heard at the beginning of the week was a new policy of unlimited QE. The week previous, the Fed had come out with $700 billion in market support activities, including $500 billion to buy treasuries and then another $200 billion to buy mortgage-backed securities. Well, they extended that to effectively an unlimited amount this week. What's more, there was a shift in what they allowed themselves to buy, right? So they weren't just limited to treasuries and mortgage-backed. securities anymore, they actually started to go into the corporate bond market, which has just huge

implications. It's something that just hasn't been done previously. And again, I think on Monday I started with a little clip from Travis Kling from last fall where he said that the forms of QE were going to be increasingly more exotic. And I think that corporate bond buying program is exemplary of that. Now, we would find out later in the week that Black Rock would be both the recipient of of an administrator of a number of those bond buying programs, which is a whole separate issue. But the week kicked off with unlimited QE. Now, one quick note on that. How did it resolve? Well, Caitlin Long says, good news, Fed balance sheet up, quote, only 600 million this week,

did $5.3 trillion from $4.7 trillion last week. I was expecting more. Prediction. Before crisis ends, it will far exceed $10 trillion. In short term, huge dollar demand because short covering, but it won't last. Then timber? All right, next up, CBDC Central Bank Digital Currencies, or more specifically, a digital dollar. So at the beginning of this week, when things got going, one of the big questions was what the

stimulus package was going to actually look like. And there was a proposal put forth by Nancy Pelosi on Monday night that included a proposal for a digital dollar. In this context, the digital dollar was about something very different than we've seen previous digital dollar ideas from researchers and thinkers. This was basically an answer to the how are we going to get money in the hands of people question. So the way that they proposed it is that everyone would have an account effectively directly

with the Fed called a Fed account that would be able to put that stimulus money, whatever it ended up being, directly into those accounts. This got a huge number of people in the crypto world talking, well, beyond the crypto world as well in the finance world. So this was dead on arrival. Let's just put it out there. It did not make it very long in terms of the proposals. Nancy Pelosi's whole plan wasn't really what ended up being there. But it was a remarkable moment in terms of shifting the Overton window where the digital dollar all of a sudden was something that people were thinking about in a major context as an answer to a real problem rather than as some thing that was theoretical and in the future. So the

problems with this plan, numerous that they were, one, the biggest, I think, had to do with the relationship between citizens, the Fed, and commercial banks. This Fed account would effectively go around that relationship, mitigating the need for that intermediary. And there's a whole conversation to be had about whether that's, one, a good thing, or be inevitable, but it also brings with it a whole lot of problems, right? As soon as the Fed can instantly put money into accounts, it can also withdraw it, right? So there's way, way more control inherent in that system. There are questions of surveillance. We'll get to that later. But either way, the key thing here is not that a digital dollar lasted in the conversation. It's that it made an appearance when

absolutely no one expected it to. And I think that will have impacts going forward in terms of how seriously a group of lawmakers think about a digital dollar as an asset they want at their disposal for this and other situations. Theme three for the week, narrative shift to let grandma die. This is perfectly summed up in a tweet from March 24th by Mary Connor, Jesus died for our sins, Grandma died for the Dow. So basically, we saw a massive narrative shift at the beginning of this week, where all of a sudden this public health crisis became a financial crisis in a narrative sense. The reality is, of course, this is obviously both, but the point of saying that there was a narrative shift is that there was a small but then,

and then growing group of people, politicians and others, who started to scream about the second order effects of the economy. At the beginning of the week, President Trump kind of gave his blaring semi-endorsement of this by saying that people wanted to go back to work and saying that the cure couldn't be worse than the disease, which is, there's plenty in there that reasonable people can have discussions around. However, the interesting thing has to do with how this narrative propagates. itself. And so, Epsilon

theory is run by Ben Hunt, who was here a couple weeks ago. Episelon theory uses data to actually track narrative sentiment. And what they found in short is that the same people who just a couple weeks ago were saying this is only the flu, this is a media hoax, are the ones who

are now propagating this narrative of, we really need to get the economy started again. There's going to be more people that die from that. Now, there's an underlying piece of this that is incredibly depressing, which is the callous dismissal of a generation. People went so far as to actually tweet things like, my grandparents would rather die than let the economy go into depression,

and all this sort of crazy, extreme binary thinking. And that's what was frustrating to me. We talked a lot about this on my podcast with Mark Yusko earlier this week. The idea that somehow these things are mutually exclusive and that you just get to choose health or economy is just lunacy. But it shows the reward structure of social media and media more broadly to have these sort of super simple talking points. It was just a remarkable moment and a really important narrative shift that I think

we're still in the middle of right now. Now, the good that might come of this is that we do need to start having more specific plans for how we come out the other side. But guess what? That's going to involve both health outcomes, specifically testing and a really rigorous testing apparatus, as well as specific decisions economically around when people can go back to work, which groups can go back to work. That's a conversation that's being had now, but it was jarring to see how fast we went from lockdown to let Grandma die. Theme 4 of the week was the stimulus as corporate socialism. So Wednesday night, we got word

that a deal had been reached, a $2 trillion deal, that's just the fiscal Congress-approved side of things, not the unlimited checkbook that the Fed has. And it included both $1,200 to individual citizens, plus an extension of unemployment benefits, plus hundreds and hundreds of billions of dollars in corporate bailouts. Now, as you would expect, people were incensed at this, particularly in our part of the world. There's so much to be angry about. But I think that the narrative that's key here was this idea of corporate socialism. And this was embodied in a blog post of the same name, Corporate Socialism, by Nassim Nicholas Talib. So the interesting thing is that he references the fact that the justification for this huge, huge set of bailouts

is this pandemic. And for those who watch the markets and who have been watching the markets over the last few years, everyone feels like the coronavirus was the pinprick, not the balloon itself. There is a fundamental structural set of problems in the markets that this has just exposed and exacerbated. And so now, obviously, in some ways, there is a convenient narrative excuse. Well, there's this black swan event, right? There's this thing that no one could have predicted and no one had seen coming. Taleb slams his foot, slams the door down on this. He says, Furthermore, some people claim that the pandemic is a black swan. Hence, something unexpected so not planning for it is excusable.

The book they commonly cite is the black swan. Had they read that book, they would have known that such a global pandemic is explicitly presented there as a white swan, something that would eventually take place with great certainty. Such acute pandemic is unavoidable, the result of the structure of the modern world, and its economic consequences would be compounded because of the increasingly. connectivity and over-optimization. The idea that no one could have seen this coming, well, there's two problems with this. One is, to Talib's point, pandemics are something that we need to be planning for more general. But let's even hold that one aside. The idea, the notion that

no one could have seen this coming when stock markets in the U.S. hit all-time highs while hundreds of millions of people were quarantined in the supply chain capital of the world is ludicrous. ludicrous and that's why people aren't buying it. They're not buying it. But this will go on and it will be exactly as it always is. The question is really how long the health outcomes take to change. There is a chance that this $1,200 buys people enough time and things come back. Like everyone's hoping for V-shaped recovery. The vast majority of epidemiologists, scientists who actually study this, Health professionals who are looking at the growing burden on the health care system don't think so. And, well, that's next week, I guess, to argue about.

But stimulus has corporate socialism. Key theme of the week. Andrew Yang really nailed this one. He says, government may be the only thing that can fail miserably and then get bigger as a result, which of course is not exactly true because the same can now be said for Wall Street. This segues us nicely to our fifth theme, which is institutional trust. Preston Byrne wrote at the beginning of this week, Every intelligent person I know regards coronavirus as a failure of governments everywhere,

run by incompetent bureaucrats, blinded my bunny, who can't protect the country. I actually agree here. I think that there is not a single person in the world who will look at government broadly, as an institution, as an institution that is supposed to be there to support societies in these types of moments and come away with a better opinion than they had when they went in. Everyone's opinion of government around the world is being diminished by the colossal failure, the cascading failures,

the completely and totally bipartisan failures of governments in addressing this issue. Just today, just before I recorded this, Boris Johnson, who on March 3rd was bragging about how he was going to continue shaking hands, made the announcement that he had tested positive to coronavirus. Now, the question is what the actual consequences will be, well, there's going to be a variety of pieces to that.

First is joblessness claims. We saw 3.28 million people file jobless claims this week, which is four times the previous record. Four times the previous record, an entire recorded history of the U.S. That is a phenomenal statistic. People are writing this off as though somehow it's just short term. It's more like seasonal labor. It's like a hurricane hit the U.S. at the whole time.

That's the narrative that is not stressed out about this. it takes into no account how little runway most small businesses have, how little ability to deal with a hurricane that lasts two months most people are. It's just a phenomenal abrogation of the responsibility of leadership in this case. So the trust in institutions of government, I think, is hugely low. What's more, it's not just institutions, right? So yesterday, as I mentioned, those jobless statistics came out. The same day, The Dow rebounded so much that it was called by the Wall Street Journal in what I believe a tweet that will live in infamy a new bull market.

Now, of course, defenders are just going to say, well, it's just numbers, it's just statistics. It's 20% up or down means bearable, blah, blah, blah, blah, blah. It's lunacy, that on the same day that this jobless report comes out where four times the number of Americans filed jobless claims that have ever in history, the market had one of its biggest rises ever. There could be nothing that shows how disconnected, how fundamentally disconnected the markets are from the real economy and the real lived experience of people. Suna Amaz from Token Daily and Volt Capital summed it up beautifully. She said, the stock market is completely divorced from the economy, is completely divorced from money. I would add, is completely divorced from

the lived experience of human beings. Now, one last little note on this before we move on, we are starting to already see the political ramifications. Kosovo voted out its prime minister because of the way that they handled this coronavirus outbreak. I do not think this will be the last political head to role in this situation, especially in the context of Christine Lagarde, the president and head of the ECB, the European Central Bank, banging on the door of European leaders saying that they have to move quickly to stem the economic crisis that's happening. and they gave themselves two weeks to go figure something out after not being able to figure some out this week.

Keep in mind that the epicenter of this crisis may be moving to the U.S., but it's been in Europe longer. It's just, there is, again, cascading catastrophic systemic failure of leadership that this is exposing, and that I think is really in a lot of ways the straw that breaks the camel's back and institutional trust for a huge number of people. Theme 6. Surveillance. In the context of crises, centralized powers governments usually consolidate power. They take extraordinary wartime power, crisis time power. The problem is that they don't tend to want to give up that power after they have claimed it. So this is something that many, many, many, many in the Bitcoin and crypto community are watching closely. Well, yesterday, Marty Bent summed it up beautifully with that Christmas that only Marty has. We just got

Patriot acted freaks, fear wins again. The article that he was referencing was from Business Insider titled, The CDC would set up a coronavirus surveillance and data collection system as part of the Senate's $2 trillion stimulus bill. Here's the key line. Of the funding allocated to the CDC, the bill sets aside at least $500 million for public health data surveillance and modernizing the analytics infrastructure. The CDC must report on the development of a surveillance and data collection system within the next 30 days. While it's not clear what form the surveillance system will take, the federal government has reportedly expressed interest in aggregating data that can be gleaned from tech platforms and smartphone use to monitor movement patterns. We are seeing this

around the world. It started in China, it moved to Korea, it happened in Israel. This is the way that encryption dies. This is the way that data surveillance of phones becomes normalized. and it's the type of thing that we really have to be vigilant to try to prevent. Now, unfortunately, I would say that as a theme, this is a theme that matters much more to us in this Bitcoin and this crypto community than it does to lots and lots of other people. And it's hard to know exactly how it would break into the public consciousness and the public mainstream. For that reason, more than any other, I think that it is something that we need to keep banging the drum on. It's kind of our job, basically, to make it clear that this is an issue.

Again, there's not a mutual exclusivity between finding a way out of the health crisis, finding a way out of the economic crisis, and not having to resort to surveilling citizens in a way that just breaches our privacy, breaches the Constitution, et cetera. So surveillance, surveillance, you've heard me talk about it before. You're going to hear me talk about it again. Theme six for this week. All right, the last theme is most definitely just something for this community, but it is a powerful reminder of this system that we call Bitcoin. One of the aspects of Bitcoin that is so unique is its difficulty adjustment system.

So the idea is that in an effort to keep block times around 10 minutes every two weeks, the Bitcoin difficulty adjustment occurs to either make it harder or easier to mine. And usually what it has to do with is if miners have gone on. offline for some reason. So for example, price has gone down sufficiently that there's some amount of miners that can't profitably mine, so they turn off their machines for a little while. The difficulty is adjusted down so that the people who remain mining can make more profit, so they pour more hash power on it and incentivizes people to come. Basically, it's this resilient incentivization system that can react with relatively quick order to market conditions. This week,

we saw the second biggest difficulty adjustment of all time, almost 16% down. The only time that was bigger was in 2011 before there were ASIC. So this is the biggest difficulty adjustment of the modern era, but it just kept hanging along because this is an automated system. It was meant to do this. Preston Pish sum this up perfectly better than I could have. He says, negative 15% difficulty adjustment is incoming in a few hours. The incentive structure on this thing is so resilient. It's almost laughable. So why mention this in a themes of the week that are all about this larger global context? Well, the vantage point I would imagine for most of you guys who are listening, who are hanging out on this journey with me, is Bitcoin. That is your gateway into this conversation,

or cryptocurrencies more broadly. This is our starting point to look out across all of these different issues, be they financial issues and the way that markets are structured, be it government issues and power issues, right? Like the vantage point that we have is, Bitcoin. And my goal with this podcast is to be able to make that perspective that you have that starts with Bitcoin be a gateway to a wider world, be a lens through which you can assimilate other types of information, restructure it, and figure out what you think and how you think we should act better. So I think that coming back to this idea, reminding everyone of the resiliency of that system, the resiliency of the starting point that we share in Bitcoin is really important.

You know, one of the things that I've thought of frequently over the last few months is that there isn't a community of professional interest, an economic interest, an industry that you could have been in where you would have been better informed about the coronavirus over the last three months than cryptocurrency, than Bitcoin, more than even mainstream medicine in the U.S. It was folks who were seeing what was happening in China, where we obviously have direct connections to that. It was people who watch exponential functions. The first podcast that I did about coronavirus almost more than a month ago now was about why Bitcoin and Crypto were so interested in it. And I think that the reality is, as I said, Bitcoin is a lens to understand the world around us

and to try to have some agency and ownership in the future that is happening to us, right? The unreasonable man adapts the world to himself, the famous George Bernard Shaw quote. The reasonable man adapts himself to the world. The unreasonable man is very many quote, but you get what I'm saying, right? The point is that bitcoiners, by and large, whatever gender they are, are interested in being that unreasonable person who takes a hand in shaping the future. And when you have a singular global event like this, of course we're going to be interested. Of course we're going to be involved. So thank you guys for hanging out. Thank you guys for listening.

Thank you guys for being a part of this active, engaged, resilient community. That's it for me this week. I'll be back on Monday with another episode of the breakdown. Until then, stay safe, hug someone you love, drink if you need to, smoke them if you got them. Peace, guys.