Opinion: The long-term depreciation of the US dollar is an important support for the rise of Bitcoin
In response to the epidemic, the new Biden administration is drafting a huge economic rescue and fiscal stimulus plan to rescue the people, businesses, and vulnerable groups. According to media reports, the scale is as high as 2 trillion US dollars. In 2020, the Trump administration itself has implemented a large amount of fiscal stimulus to boost the economy and rescue the people, resulting in a projected fiscal deficit of US$3 trillion in 2020 and a total public debt of more than US$210,000.
On the one hand, the government's money comes from taxes, but where does the shortfall come from?
Many market traders who do not have a background in money and banking follow suit from the media and headlines and think that money is "printed". "It came out from the issuance of national bonds. Who is the buyer of treasury bonds?
There are several main roles for current US Treasury bond holders
1.Overseas investors and sovereign central banks(China 4.3%, Japan 4.5%, Saudi Arabia 3%, etc.), accounting for 30% of the share, the US dollar is a common international payment currency, holding a certain amount of US dollar treasury bonds is conducive to stable exchange rates and trade settlement.
2. Federal Reserve, about 15%. The purchase of treasury bonds by the Federal Reserve is the most important part of the QE operation (the other part is the purchase of mortgage-backed bonds to lower mortgage interest rates and encourage people to buy houses for consumption). The central bank purchases a large number of treasury bonds to lower the yield rate. Expenses pay the bill.
3. Private SectorPurchased about half of the remaining treasury bonds, such as various pension institutions, asset management companies, hedge funds, commercial banks, etc.
Although many people like to say that the Fed can limit QE, it is certainly not really unlimited. Otherwise, why doesn't the Fed simply buy all the national debt, and then the government distributes hundreds of millions of dollars to each citizen. The current release of water is precisely open-ended QE, that is, based on the amount of 120 billion US dollars per month, it is conclusively stated that there may be no quantitative limit or time limit for future bond purchases.
However, the future trend may be that the United States is evolving in the direction of the Federal Reserve paying for all government spending, the so-called Modern Monetary Theory (MMT).
The U.S. government needs money, but its own fiscal revenue is far from enough. In the 2020 fiscal year, the U.S. fiscal revenue is about 3.42 trillion U.S. dollars, and fiscal expenditure is about 6.552 trillion U.S. dollars, a deficit of 3 trillion U.S. dollars, that is, nearly half of the government’s expenditure depends on borrowing money. make up. In fiscal year 2020, the federal budget deficit accounted for 15.2% of the U.S. gross domestic product (GDP), up from 4.6% in the previous fiscal year, a record high since 1945, and the total deficit exceeded $21 trillion.
Although the U.S. dollar is an international currency, with such a huge fiscal deficit, and according to the current trend, it may be difficult to even pay interest in the future. Overseas countries such as China and Japan have stopped increasing their holdings of U.S. debt. If you are interested, go to the websites of the central banks of Japan and China to see that the amount of U.S. treasury bonds held by them is basically at the lowest level for many years in 2020. The Fed's current QE plan is to purchase up to 80 billion U.S. treasury bills (treasury bonds) and up to 40 billion MBS purchases per month. The Fed can only purchase up to a year$960 billion national debt, It is slightly insufficient to meet the 2 trillion US dollars of national bond issuance in 2021. The private sector has to take care of it.
As with trades, yields may have to rise if the increased supply of bonds is to attract the private sector to pay. As shown in the figure below, the current medium- and long-term government bond yields have been rising steadily.
After the government gets the money, it will make financial expenditures, directly send money to the people, give loans to enterprises, purchase and infrastructure construction will push up the inflation level (the content of macroeconomics, fiscal policy will push up the long-term inflation level). The yield of U.S. Treasury bonds has always been the benchmark for risk-free yields in the financial market. The trend of rising yields represents the advent of an era of high inflation and high interest rates, which is very similar to the United States in the 1970s and 1980s. The U.S. national debt has exceeded 102% of GPD. Foreign countries have seen through it and don’t want to continue to increase their holdings. It is expected that the issuance of more national debt will first consume the savings of the private sector. In the end, the Fed will have to buy most of the national debt issuance, and the Fed will completely lose its independence. Sexuality, becoming a vassal of the government's financial department: that is, the money the government needs is directly paid by the central bank.
From the perspective of actual operation, passive money printing has become the mainstream, and fiscal discipline has no scruples. Taking the United States as an example, the Fed’s three rounds of quantitative easing after the financial crisis in 2009 provided banks and traders with extremely cheap liquidity (depressed treasury bonds, mortgage interest rates), most of the objects of operation are treasury bonds and real estate mortgage bonds, at least senior collateral. In this round of anti-epidemic, the Federal Reserve quickly cut interest rates to 0, purchased 120 billion US dollars of bonds every month (regular operation part), and also introduced a loan plan to support corporate bond ETFs, small and medium-sized enterprises, and the public, and only bought stocks directly. The collateral for newly created money is getting worse and worse.
The reason why Reagan became one of the most powerful presidents in the public opinion in the 1980s is that it controlled inflation and pushed the United States towards financial liberalization and information technology industry. When Volcker took office as chairman of the Federal Reserve, he raised interest rates, coupled with financial liberalization and structural reforms, and signed the Plaza Agreement with Japan to depreciate the dollar, only to get out of the stagflation quagmire of the 1970s. However, in the United States, the current domestic economy is slowing down, political struggles are fierce, populism, ethnic and religious conflicts are unresolved, and political leaders do not have the determination and broad political support for arduous reforms.
So, the only reasonable, painless way to deal with debt is to print more money to dilute it.
It is a long-term trend for several years to be firmly bearish on the exchange rates of currency pairs such as USD/RMB and USD/JPY. Good for all metals, bitcoin, gold and other commodities.
Emphasize the major positive logic of the depreciation of the US dollar for Bitcoin. On the one hand, Bitcoin, as digital gold, has a grand "narrative" against inflation. Currency appreciation and the long-term trend of rising electricity costs both push up the cost of "production" in dollars.
Longing Bitcoin, I am.
