TD₿: Bitcoin is Venice: Sustaining the Unsustainable by Allen Farrington and Sacha Meyers
TL;DR Bitcoin can repair the broken incentive systems created by finance and low interest rates that lead to unsustainable practices.
Hey Bitcoiners,
This week, CPI inflation came in at 8.3% YoY, down 0.1% MoM. This was no doubt a very disappointing print to the Federal Reserve and Biden Administration, who are feeling the criticism every month that CPI remains at these elevated levels.
This reading came in higher than expectations, and many market participants now expect the Fed to continue on its mission to combat this inflation by aggressively raising its benchmark rate. The market now gives nearly a 100% probability that the Fed will hike another 0.75% at its next FOMC meeting.
CPI remained elevated mostly because of contributions from the shelter and food components. Even though rent and home prices are starting to come down, this component of the CPI tends to lag, given how it is measured. Thus, a lot of the rise in the shelter component can be attributed to price movements in the housing market that occurred all the way back in Spring.
Another interesting aspect of the new CPI report showed how the price of gasoline has dropped by over 50% since July, to only 18.2% YoY. This decline in the price of gasoline has been a headwind to the headline CPI number over the last couple of months.
However, it’s important to remember that this drop in the price of gasoline can at least in part be attributed to the Biden Administration draining the Strategic Petroleum Reserves at a rapid rate over the last couple of months.
This is obviously not a sustainable practice, and it is definitely not a long-term solution to the energy shortages that have hit the world since Russia invaded Ukraine.
The risk here is that the Fed will see this high CPI inflation print and think it has to continue to hike interest rates to bring it down, but its policies will have little impact on inflation because there are real-world shortages that the Fed can’t fix. In other words, the Fed can’t print more molecules, and raising interest rates isn’t going to do anything but cause destruction in financial markets.
This whole debacle is another example of the unsustainable nature of the current debt-fueled monetary system that breeds short-term thinking. Inflationary money leads to high-time preference decision-making, which leads to implementing unsustainable solutions which do nothing to fix long-term problems.
Allen Farrington and Sacha Meyers wrote this article on how Bitcoin can repair the broken incentives created by our traditional financial system that has led to unsustainable practices. (05/10/2022)
Bitcoin tends to elicit the opposite effect on individuals in that it gets people to think more long-term about their lives because they can trust the value of their savings can’t be inflated away.
This shift from short-term to long-term thinking will do wonders for our society as we put our minds together to come up with solutions to big problems that take years to build and implement. The result will be a turn away from unsustainable practices that create an unsustainable world, into one that is sustainable and ripe for healthy long-term growth.
Tick tock next block,
Cory Klippsten
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Meme of the Day
(h/t @anilsaidso)
Hi Cory. I love your articles. However, as a sedimentologist Venice is not a good choice for an analogy, metaphor, or association with Bitcoin. Here me out ... I've been to Venice (3x). It's a nice place with some great architecture and a rich and interesting history. But, Venice is a dying set of islands fighting climate change, overpopulation, pollution, sea-level rise, and a lack of resources. If anything I'd argue that fiat currency is a Venice. Fiat faces existential crises all around like Venice. A rise in inflation (sea-level) and fiat must adjust monetary policy to survive a few more years. Similarly Venice and the Italian gov't has taken great steps to fight both a rising sea-level and islands that were sinking. Anyway .... something to think about. Take care. Stan