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In this episode of Bitcoin MagazineMy “Fed Watch” podcast, Christian Keroles and I sat down for our first live stream as part of a new show Bitcoin Magazine Live shows. Going forward, we’ll be recording live at around 2pm Eastern Time every Tuesday. Join us and once we get the hang of it, we can answer questions directly from the chat.
This week, we took a tour of the macroeconomic spiral. First, we listened to and responded to three clips of Federal Reserve Chairman Jerome Powell’s testimony before Congress, where he dropped the term “interim.” Next, we did a quick read of an IMF blog post about the debt crisis in low-income countries. Third, we discussed China’s central bank, PBoC, cutting the reserve requirement ratio (RRR) by 50 basis points (bps) and Evergrande’s default. Finally, we appreciate bitcoin and cover some of our ongoing arguments on geopolitics and macro, why we’re bullish in the US and bearish in Europe. It’s a huge live show, I think you’ll all really enjoy it.
Fed’s Powell retires “temporarily”
We’ve got three clips of Powell that we’ve heard. Each allows us to discuss different aspects of the Fed, its monetary policy, and possibly their inner thoughts. So many Fed experts and analysts don’t even see actual testimony. They surfaced by the headlines or by some journalists about what Powell had to say. The money-oriented public tends to think that these people are evil. We think the central bankers were wrong and in part, but we actually looked at the testimony to form our own opinions and take you with us.
Our discussion includes sections on transitory issues, the global low-interest rate environment, the issues of inflation forecasting based on nonlinear supply, and whether the taper is speed up or not.
IMF shows economic slowdown in low-income countries
In one blog post From December 2, IMF President Kristalina Georgieva wrote, “We could see economic collapse in some countries unless G20 creditors agree to accelerate debt restructuring and suspend debt services within while the restructuring was being negotiated.”
This is very worrisome. Do these countries have international loans deferred for 12 to 18 months that they have yet to repay? If they can’t pay them after a one-year delay, what makes people think restructuring will help?
These countries are in real trouble, and that is consistent with our argument that emerging markets have benefited over the past 50 years from an easy credit environment. Now that the easy credit environment has passed, they will face the heavy burdens of continuing to their previous levels of economic activity.
China cuts RRR for banks and defaults Evergrande
Our last stop is China. We mention the Fed, we include Europe in our discussion, and then we mention the People’s Bank of China. This week, it announced a Cut 50 bps to the Reserve Request Rate (RRR), freeing up 1.2 trillion yen in the hope that banks would go out and lend.
This follows a similar cut earlier this year in July, which is said to have freed up 1 trillion yen. It must have failed to perform as expected, or the economy is much worse than previously estimated, because of why it had to do it again, and/or why it expected better results. this time?
If banks don’t lend, it’s not because they don’t have reserves. There have been empirical studies regarding RRR – banks lend first, then go out and source the necessary reserves. Giving banks a place in the RRR doesn’t make them want to go out and lend.
This also happened right when Evergrande was facing default of a foreign debt, if it is not already in default at the time of writing. Reports say Evergrande will default on $19 billion in international bonds and its second-largest international debtor in real estate, Kaisa, has also defaulted on $12 billion overseas. The spread continues.
Finally, we compared and contrasted the sentiments of recent PBoC and Fed statements. The global financial realities are very similar for these two countries, indeed they are closely intertwined, but as Powell paints the story that the economy is doing very well and is at risk of increasing excessive growth and inflation, the PBoC said that the central bank needs to provide liquidity support to the economy in advance to prepare for potential challenges.
The contrast is obvious. The Fed is giving positive guidance on futures and the PBoC is negative.
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https://bitcoinmagazine.com/markets/bitcoin-and-macroeconomics-imf-warns-of-collapse Bitcoin and Macroeconomics, IMF warns of collapse