The Breakdown - The End of an Era? Why Bitcoin and MMT Won the Week

Episode Date: August 29, 2020

On The Breakdown’s Weekly Recap, NLW looks at the shifting sands of the global economy. He says Federal Reserve Chair Jerome Powell’s speech at Jackson Hole this week was an argument that an era that began in the 1970s is now closing.  At the same time, he argues Powell did very little to provide a vision for what comes next. Instead, it is the alternative economic philosophies – Modern Monetary Theory on the one side, bitcoin on the other – that are attracting people for a different vision of the future.

And inflation is something which most people's experience of belies what CPI-type measures tell them. In other words, you can squawk all you want about how there's not enough inflation, but when people have spent 10 years feeling like they're getting farther behind, it doesn't ring true. So it was a major, major narrative misfire to focus on inflation rather than growth, and in particular a type of growth which would have been more inclusive. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinDess.

What's going on, guys? It is Saturday, August 29th, and that means it's time for the weekly recap. And today, I wanted to try to tower. together the threads that we've been talking about all week that connect the dots between Bitcoin and Jerome Powell's speech and really try to get a sense of where we are big picture. I'm calling this episode the end of an era. So Jerome Powell this week tried to bookend an era that started with the 1970s. Part of why he pointed to that time, I believe, is that Paul Volker has risen to, folk hero status in economists and politicians and business people's minds, right?

He was the person who was willing to raise rates during a recession to wrestle inflation to the ground. Of course, he had the backing of his president to do so, which puts him in a very different position to where Powell is now, but you could still see this sort of sense of historicity in the presentation from the Fed chair. He tried to make the argument this week that, While back then it was inflation that was the problem, it is now the lack of inflation. This was, in fact, the absolute centerpiece of his Jackson Hole speech. I believe that this is a massive narrative misfire for a few reasons. The story he wanted to tell, the story I think he's trying to tell, isn't about inflation.

It's about growth. He wants to tell the story of what growth in an economy looks like. he should have wanted to tell the story of how that growth in an economy impacts workers. Had he talked about growth, he might have even talked about types of growth. He could have articulated a policy that would get us to a type of growth that wasn't exclusively to the benefit of asset holders and owners. But instead, he focused on inflation, something which is, at best, a byproduct of or correlated with growth, something that has meaningful,

negative impact on people's lives in the context of the short term. Something that has meaningful negative impact on people's lives, because, hey, more expensive basic needs. And inflation is something which most people's experience of belies what CPI-type measures tell them. In other words, you can squawk all you want about how there's not enough inflation, but when people have spent 10 years feeling like they're getting farther behind, it doesn't ring true. So it was a major, major narrative misfire to focus on inflation rather than growth, and in particular, a type of growth, which would have been more inclusive. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is Crypto.com. Crypto.com offers one of the most

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with interest rates starting from only 5.9% APR. NXO also lets you earn up to 10% annually on your Fiat and digital assets. What's more, interest is paid out daily, and you can add or withdraw funds at any time. Get started at nexo.io. The other part of the narrative misfire, I believe, has to do with the positioning of this speech as some big sea change. This is, let's be blunt, more of the same, and frankly, nearly everyone feels like it's more of the same. There may be very divergent perspectives on what that same inevitably leads to,

runaway inflation on the one hand versus dwindling capacity to do anything on the other, but they all disagree with the course that's being taken, or rather the lack of a shift in the course being taken. Ultimately, the Fed looked like an institution that was tired and increasingly ready to hand the whole enterprise over to someone else. Even if that is right, they didn't articulate why someone else or a grand vision of that would make that someone else make sense. And herein lies the problem. It is the end of an era. There are numerous long-term cycles coming to a close, the global expansionary growth cycle being one of them, the global leadership era, with the U.S. as the undisputed monopower being another. Everyone can feel the tectonic plates

shifting right now. In that environment, to have a seat at the narrative table, you have to articulate a vision for what the change is leading to, or more importantly, should be leading to. You have to articulate a different vision for what comes next. While they are two totally opposite and separate ideologies, both MMT, Modern Monetary Theory, and Bitcoin offer that type of different vision for how things should change. And frankly, both of those ideologies got a huge boost this week. For the MMT crowd, it was the accession, effectively, from the Fed, that this all might really better be the government's job. We shouldn't care about inflation. We should just care about full unemployment, and we need the Treasury's help to do that. We need Congress's help to do that.

That's effectively what the Fed said, which is also effectively what the MMTers are saying. The difference is the MMTers are making an argument for a grand vision of how government should be that is unafraid in a totally different way. And while you and I and many may think that there are huge problems with the way that that ideology is constructed or argued from an economic perspective, you can't deny that it is at least presenting people with a vision for the future. Bitcoin 2 offers that type of different vision, although again, in a completely opposite sort of way. And this week, they got the boost, the Bitcoin community got the boost, the Bitcoin argument got the boost of further evidence that a true non-inflationary

alternative was needed. This was a fascinating week in Bitcoin to me because even though it was frankly a very boring price week, there was a ton of energy in the space. You saw great big acquisitions. You saw asset managers with trillions under management start big new Bitcoin-focused funds. There is clearly an energy here because Bitcoin offers an alternative to the nothing, to the more of the same, which is exactly what the Fed gave us. And so in total, it's just hard not to feel like it was an institution managing a slow and inevitable decline, tired and ready for someone else to pick up its slack. So maybe Hugh Hendry is right. Maybe we do need a Joe Rogan for Fed Chair. Although, frankly, Joe Rogan feels tired, too, and this whole Spotify deal seems a

little bit like a version of retirement. So maybe it's pomp for Fed Chair. Maybe it's Melton for Fed Chair. Maybe it's Stephanie Kelton and Luke Gromman as co-chair so they can have big, stratospheric arguments, and at least we get something, some great big debate about the nature of the society and the economy that we want to have with an institution that is bold enough to actually do the things that it takes to get there. Because this is the end of an era. It's just not clear what comes next, and it's certainly not clear after this week that the people in charge have any capacity to lead us there. Anyways, guys, that's it for my weekly recap. I hope you enjoyed this. If you like this show, I appreciate every rating and review. They make a huge difference. I hope you're having a great weekend,

guys. I'll be back tomorrow with Long Read Sunday, so until then, be safe and take care of each other. Peace.