Monetary Predictions

December 19, 2021

Jay Powell announced that he aims to taper QE by March 2022 and raise rates to 0.9% toward the end of ‘22. At least this is the objective as at December 2021, and aimed at halting rising inflation. I don’t expect he’ll carry this objective out - that is I reckon he’s bluffin’ with his muffin. The ‘everything bubble’ will be popped by inflation rather than by interest rates. Every trick in the book will be thrown at preventing such an event, and in its aftermath to restore the bubble. CBDCs will be employed to this end, but nothing will prevent the world from getting very fuckin’ fair, real fuckin’ fast! Most will learn that they‘ve mistaken proximity to the money printer for actual competence. God knows the order of events, but as with all things, necessity is the mother of invention. Let’s have a crack but:

Attempt to taper QE
Tapering causes a ‘hiccup’ in the markets
Resumption of QE - used for bond yield curve control
Accelerating general/asset price inflation
’21 - 5%; ‘22 - 10%; ‘23 - 25%, ‘24 - 50%, ‘25 - 100% . . .
Public still prefers asset ‘values’ over inflation
The next recession is triggered by inflation. Public spending more, but buying less - little discretionary left over.
Central banks release digital currencies (CBDCs)
Deflation (liquidation) of certain asset classes whilst general prices continue rising - derivatives, bonds, stock market and most crypto crashes.
True price discovery cannot be prevented in all markets
Many commercial banks fail
Central banks introduce universal basic income (UBI)
Public now preferences controlling inflation over asset values
Central banks raise interest rates
Commercial banks forced to regroup around ‘maturity transformation’ rather than money creation
Battle between forms of currency for wide acceptance as medium of exchange
Bank deposits get trapped - notes and coins worth more than face value
Without acceptance as a medium of exchange, currencies lose function as stores of value
Bank deposits flow into surviving crypto
Bitcoin better than bank deposits - not as good as gold, cash (notes and coins)
Commercial banks win battle against central banks - MMT fails
Once debt/fiat instruments are liquidated and gold monetised, the rules of the game can be reset
Currencies backed by gold - a mechanism accessible to the public required to ensure this is maintained in the long-run
‘Do not delay bad news’ policy
Fractional reserve banking maintained with crypto, which allows the return/convenience of digital banking