Rabo: Our Flailing, Failing, Always-Be-Bailing Financial System Justifies Nausea

By Michael Every of Rabobank

It’s not often that I will recommend a segment of contemporary TV as having direct pertinence to financial markets, but did anyone watch Bill Maher’s not-safe-for-work monologue raging against cryptocurrencies last week?

In particular, his opening remark that things starting with “crypto-” generally aren’t good spoke to me. Pre-2008, the only “crypto” word I had in my memory-bank was “crypto-fascist”; but that compound noun has since been bisected, with both halves going viral in the eyes of different parts of society. Maher really did not pull his punches as he continued: “Nothing is ever actually being accomplished and no actual product made or service rendered….It’s like Tinker Bell’s light. Its power source is based solely on enough children believing in it…Our problem is not economic but psychological. People who have been raised in a virtual world are starting to believe they can really live in it.”

“OK, Boomer,” no doubt respond the cryptonites, swiping right under lock-down and waiting for their pizzas to arrive. There is not much one can say to that oft-heard, dazzling rhetoric. Yet by the power of pure serendipity, the same day Maher was speaking our own Wim Boonstra published his rebuttal of crypto too, which can be found here. To summarise, Wim goes in just as hard as Bill, but without the allusions to Peter Pan’s fairy friends. And this Daily only differs in striking a communication tone somewhere between the two – caveat Tinker Bell!

Of course this view is hugely unpopular in some circles – those who own crypto. “You just don’t get it,” will no doubt be the politer of the iterations of the message I will receive.

No, I don’t.

Or rather, I do. Trust me, I know my monetary history; and heterodox economic theory, and economic history (not the comic-book version ‘taught’ to economists); and geopolitics; and realpolitik. And it is precisely because of that wider view that I can’t bring myself to believe we are going to see both a collapse of the global international monetary order and the power of the nation state, allowing crypto to thrive, and yet we also poodle around in self-driving Teslas on smooth roads (in underground tunnels) while checking our crypto balances, as gig-economy workers or drones deliver us delicious food we didn’t grow and certainly can’t cook.

In short, if you are in full survivalist mode, or at least long commodities, then I can see the skin in the game; or, if you are entirely lacking in ideology but just buy things that go up – until they go down again. But “OK, Crypto-Boomer,” is the message to those who think they can say “Roads? Where we are going, we don’t need roads,” to avoid any future potholes.

Yes, I fully grasp our flailing, failing, always-be-bailing financial system justifies nausea rather than back-patting; I fully recognize the logic that what cannot continue will not; and I am always flagging the risks of geopolitical potholes about to be dug,…or caused by munitions: e.g.,

• The EU aiming to cut its dependency on Chinese and other foreign suppliers in six strategic areas including raw materials, pharmaceutical ingredients and semiconductors, under an industrial action plan to be announced as soon as this week;

• A (non-binding) EU parliament resolution that any further Russian aggression should prompt its removal from the global SWIFT payments system just before US Secretary of State Blinken is due to visit the UK and Ukraine;

• The Economist magazine openly flagging Taiwan as a geostrategic flashpoint, which it is;

• Reports in the Washington Post that allege China’s Belt and Road Initiative used forced labor;

• China warning Australia to avoid getting ‘burned’ by colluding with ‘terrorists’;

• Australia reviewing China’s 99-year lease on the Port of Darwin signed in 2015;

• North Korea sabre-rattling again against the US;

• Rumors –subsequently denied– that the US and UK will offer Iran USD7bn in unfrozen oil assets in exchange for four American prisoners (or USD1.75bn per person, which at least shows no inflation since the 2015 Iran deal, when the US sent Tehran7bn in non-USD cash);

• The US also withdrawing from Afghanistan this year (and not for no reason?); and

• The appalling virus situation in India (while Europe and the UK worry about summer holidays);

Yet all of this, along with that flailing, failing, always-be-bailing financial system also argues for higher gold prices,…and they have gone nowhere compared to the constant promises from gold bugs that the only way is up in this kind of environment.

Crucially, imagine what gold and crypto might do if we were to see major economies taper their current pedal-to-the-metal stimulus. China is leaning towards deleveraging rather than further credit expansion. Moreover, the BOC have just started to edge down their QE; there is enormous pressure on the RBA to do the same – which it is resisting as much as it is seeing rampant house-price inflation (CoreLogic today says they were up 1.8% m/m in April); the RBNZ now *have* to look at house prices, which means doing *something*; and there are suggestions the BOE might soon move in the same direction (tapering, not deliberate blindness or being forced to look at house prices). Of course, the Fed is still unmoved – for now. Yet watch the Anglo central banks closely. If they all start to move further towards tapering by the summer, what might August’s Jackson Hole then offer as platform for the Fed?   

Of course, then we would still get back to the issue of whether tapering means higher or lower long yields, which is intimately tied up in political-economy and power, which it itself at the root of the whole crypto (and crypto-fascist) debate. So Bitcoin’s time to shine then?

When a TV comedian can poke fun at you, and get a mainstream audience roaring with laughter, it suggests one is not as powerful or fashionable as one thinks: which is why the dictators that cryptonites ironically profess to hate so much are allergic to comedy even as they are the best material for it.