Stocks of course are next on deck for being "bitcoined".
All of these "assets" have one thing in common, they are denominated in dollars and unfortunately, the money supply is at risk of collapse.
The Money Supply Is History's Greatest Confidence Game
Most people are oblivious to the fact that the money supply does not consist of hard currency ("cash"), it consists of credit, which are merely "IOUs" between two parties. And of course the efficacy of IOUs rests solely on confidence in repayment. Therefore, just as we live in a bubble for credit, driven by 0% interest rates, we live in a bubble of commensurately-subsidized confidence. Minsky described three types of lenders - each of increasing riskiness - hedge, speculative and ponzi. Over time he indicated that given a long enough expansion, borrowers would gravitate to ever-riskier borrowing as both lenders and borrowers gained confidence. Given that Central Banks have provided overwhelming incentive to borrow via 0% interest rates, we have to consider this current cycle to be somewhat "amplified" to say the least. Under the current 0% regime, any corporate treasurer would be deemed "irresponsible" not to borrow at ultra-low interest rates in order to lower the cost of capital - Finance 101. The money could then be used to pay "special dividends", buy back stock to cover up insider options dilution, and if all else fails, invest in the business and create jobs. Speculators of course, can take cheap money to add leverage to turn an unleveraged position yielding say 4%, into a leveraged position yielding 20%, sit back and wait for the fat end of year bonus to arrive. A consumer can use a home equity loan to turn his house into an ATM machine and pretend to have as much money as everyone else on the block. The point I would make is that so far in this new cycle, "confidence" has not been stress tested. When it is, then credit will contract, and demand for all things will go down. At that point, prices will fall, revealing more insolvency as asset collateral no longer covers debts. Rinse and repeat and soon the entire money supply is in a major contraction. It's been four years now without a major credit event - which is more than enough time for hedge borrowers to morph into ponzi borrowers given the overwhelming incentives created by Central Banks. Once this "unwinding" of the money supply begins, Central Banks will be powerless to stop it. They can't control the asset allocation of $200 trillion in global capital using $85 billion a month in QE.
The Money Supply Is History's Greatest Confidence Game
Most people are oblivious to the fact that the money supply does not consist of hard currency ("cash"), it consists of credit, which are merely "IOUs" between two parties. And of course the efficacy of IOUs rests solely on confidence in repayment. Therefore, just as we live in a bubble for credit, driven by 0% interest rates, we live in a bubble of commensurately-subsidized confidence. Minsky described three types of lenders - each of increasing riskiness - hedge, speculative and ponzi. Over time he indicated that given a long enough expansion, borrowers would gravitate to ever-riskier borrowing as both lenders and borrowers gained confidence. Given that Central Banks have provided overwhelming incentive to borrow via 0% interest rates, we have to consider this current cycle to be somewhat "amplified" to say the least. Under the current 0% regime, any corporate treasurer would be deemed "irresponsible" not to borrow at ultra-low interest rates in order to lower the cost of capital - Finance 101. The money could then be used to pay "special dividends", buy back stock to cover up insider options dilution, and if all else fails, invest in the business and create jobs. Speculators of course, can take cheap money to add leverage to turn an unleveraged position yielding say 4%, into a leveraged position yielding 20%, sit back and wait for the fat end of year bonus to arrive. A consumer can use a home equity loan to turn his house into an ATM machine and pretend to have as much money as everyone else on the block. The point I would make is that so far in this new cycle, "confidence" has not been stress tested. When it is, then credit will contract, and demand for all things will go down. At that point, prices will fall, revealing more insolvency as asset collateral no longer covers debts. Rinse and repeat and soon the entire money supply is in a major contraction. It's been four years now without a major credit event - which is more than enough time for hedge borrowers to morph into ponzi borrowers given the overwhelming incentives created by Central Banks. Once this "unwinding" of the money supply begins, Central Banks will be powerless to stop it. They can't control the asset allocation of $200 trillion in global capital using $85 billion a month in QE.
The bottom line, is that the vast majority, who do not expect or even understand deflation, will be getting a "crash" course. As always, it will be a day late and many dollars short...
(Treasuries are rocking higher, of course - a Treasury merely being a long-dated dollar).
(Treasuries are rocking higher, of course - a Treasury merely being a long-dated dollar).
