Janet Yellen is feeling good. "I think you'd have to say we are on a path that looks exactly like that," she told Bloomberg regarding the United States avoiding a recession and containing inflation. Confidence abounds!
In an era where easy money has become the foundation of our economy, it's hard to deny that we're skating on thin ice. While the Janet Yellens of the world remain blissfully unaware or intentionally misleading, all signs point to an impending seismic shift.
The root cause is the Federal Reserve, whose prolonged low-interest-rate policy created a deceptively fragile economy. Today, we're grappling with a debt burden beyond comprehension, soaring past $33 trillion. Contrast this with the $3.3 trillion in 2001, and it's evident that we're in uncharted waters that even the Fed's army of economists is having trouble navigating.
If the government shuts down, the BLS will cease releasing data the Fed uses to make decisions, leaving it flying blind.
The 10-year Treasury yield is nearing 5% – a level not seen since 2001. But unlike two decades ago, the stakes are much higher due to our national debt. The implications? Rising interest costs that today's economy, constructed on cheap credit, isn't equipped to handle.
It's not just the bond market sounding alarms. Across the board, from mortgages to credit cards, interest rates are surging, putting immense pressure on individuals and institutions that gorged on the "free money" of yesteryear.
The Federal Reserve's experiments have set the stage for an impending disaster. As we edge closer to the precipice, does anyone besides those in charge believe the landing will be soft?
With that, let's dive into the news.
SEC delays spot ETF applications, unleashes new Tradfi surveillance, gets attacked by Congress 😮💨
The SEC made multiple headlines this week – here are the top three:
A bipartisan group of lawmakers, including four House Financial Services Committee members, urged the SEC to approve bitcoin ETF applications, stating that the SEC's current stance is "untenable" and discriminatory. This comes after the SEC lost a court battle over its decision to reject Grayscale's spot bitcoin ETF application, with the court deeming the rejection "arbitrary and capricious."
New initiative to spy on Americans
The SEC has established a Consolidated Audit Trail (CAT) database to monitor every U.S. investor's personal and financial activities, a move critics see as an overreach and threat to privacy rights. While initiated in response to the 2010 "flash crash" to oversee markets, the CAT's scope extends to collecting investors' data, a move opposed by financial leaders, civil rights groups, and some in Congress, voicing concerns over potential misuse and cyber vulnerabilities.
Spot ETF approvals? Not yet!
The agency has once again postponed decisions on several Bitcoin spot ETF applications, including those from GlobalX and Ark/21Shares, setting January 10, 2024, as the ultimate deadline for Ark's application. This delay follows the aforementioned pressures from crypto-supporting lawmakers and Grayscale's lawsuit win against the SEC, challenging the agency's inconsistent decisions on ETF approvals; however, some analysts believe an approval by year's end is unlikely. Curiously, rumors are spreading that it will approve Ether futures ETFs next week.
A new way to calculate bitcoin’s price 🏷️
Developer Steve Jeffress released UTXOracle, a Python tool that can approximate bitcoin's U.S. dollar price by analyzing on-chain bitcoin data, exploiting a pattern where a significant portion of bitcoin transactions are made in round fiat denominations. For a more detailed explanation of UTXOracle, see this Bitcoin Magazine article.
What does this mean for bitcoiners?
This innovation means users running a full bitcoin node can determine the fiat price without depending on external exchange data, enhancing decentralization and potentially transforming bitcoin applications in the coming years.
Revisions reveal “Bidenomics” data flaws 📉
The U.S. labor data under the Biden administration consistently shows initial strong figures later revised downwards, leading to speculation of political interference in initial reports. Recent comprehensive historical revisions to GDP revealed lower personal consumption and savings rates than previously estimated, suggesting the U.S. economy and household financial health are weaker than initially portrayed.
At this point, you should assume that the economic "facts" politicians tell us are false or, at best, massaged to the point of being meaningless.
As former EU Commission president Jean-Claude Juncker admitted on eurozone monetary policy, "When it becomes serious, you have to lie."
Ratings agency wags finger at Congress ☝️
The last rating agency to maintain its highest rating for the U.S. government, Moody's warned that a potential shutdown could negatively impact the country's credit rating, especially in the context of recent political polarization in Washington undermining fiscal policy decisions. This comes as Congress struggles to pass funding for the fiscal year, with potential disruptions to government services and furloughs.
Rating agencies don't want to downgrade the U.S., so it is telling when they do
Moody's comments follow Fitch's recent downgrade of the U.S. credit rating due to the debt ceiling crisis, and S&P Global already knocked down the government's rating in 2011. The agencies have been timid about revising such ratings because prior downgrades have resulted in negative feedback from the government, including Presidential administrations.
HOW BITCOIN WORKS
Learn one key idea about bitcoin each week. This week:
Bitcoin is a battleground.
When people are new to bitcoin, they wonder if bitcoin has staying power. Is it just a bubble? A scam? A psychological operation by intelligence services?
These are fair questions. To answer them, look no further than the actions of those who rely on fiat to maintain power and wealth. At an individual level, they may not all understand how bitcoin works or what it is capable of. But in aggregate, they consider it a threat – as evidenced by their increasing pressure and hostile rhetoric about it.
If bitcoin were as inconsequential as a bubble or a scam, it would not rise to the level of national discourse surrounding a presidential election.
If the forces of fiat somehow controlled it, it would never have been allowed to gain the momentum it has built over the past decade and a half.
Instead, bitcoin induces dread among all the right people.
The SEC’s slapdash approach to regulating bitcoin, contradictory statements from government officials, and open frustration by members of Congress demonstrate that bitcoin has become a political and cultural flashpoint.
Lucky for it, and bitcoiners everywhere, the Bitcoin Network has already reached such scale that it must be reckoned with on its own terms.
3. The Employment Act of 1946
Though the Employment Act of 1946 eventually led to the creation of the Fed's dual mandate, it was not formalized until 1978 when Congress passed Resolution 133 in an amendment to the original act. Curiously, it included the following regarding specific inflation goals:
Within five years, unemployment should not exceed 3 percent for people 20 years or older, and inflation should be reduced to 3 percent or less, provided that its reduction would not interfere with the employment goal. And by 1988, the inflation rate should be zero, again provided that pursuing this goal would not interfere with the employment goal.