The Great Flood of Liquidity: Bubbles Everywhere

Modern monetary capitalism finances itself with the emission of FIAT currencies.  Ever since the end of Bretton Woods, new monies are birthed as new debt instead of old savings under the gold standard.  This expansion of the money supply beyond savings corresponded to expanding the real economy and enabled technological abundance. 


QE in perpetuity 


The practice of QE today refers to the emission of FIAT currencies without any debt backing at all. It is still technically called debt to confuse the masses, but it isn’t real economic debt. It is not linked to the real economy in its emission; it is all symbolic and abstract. Its real-world causal effects are real: QE was formally introduced during the 2008 crisis to support the banking system and is accelerating today with covid-19 stimulus. This stimulus is directly injected into the economy. Today QE supports the have-nots with ‘stimulus’ checks. There is no end in sight to this practice.  

QE in perpetuo was first applied to banks and is today applied to social programs. QE seems to be in the cards for most civilized world to support basic social needs and financial operations alike.  Some people consider this a godsend: a monetary solution to capitalism’s growing pains as we transition from scarcity to abundance.  Third stage abundance, as Marx would have it, has been achieved, and the role of money itself is changing under our very eyes. Far from being stuck in the 19th-century scarcity mindset of work for money, 21st money starts to reflect the abundance mindset: QE and the stimulus programs are the visible tips of these psychological and societal shifts. Money no longer represents work, nor has it for a while. The non-saving and non-working classes receive QE money via stimulus checks, aka known as helicopter money in academic circles. The saving non-working classes receive QE money indirectly via financial asset appreciation.  Do you see where work is going? And who exactly is getting poorer in this state of affairs? 


But what of inflation!?


We can have it all?! Ever since 2008, many worries that an ever-increasing supply of money will invariably result in hyperinflation in the real world. After all, this is what history tells us, without fail. The historical record is brutally clear: any and all experiments tinkering with the money supply invariably result in complete societal collapse.

The end is near. 

But the experience of the last 50 years in the West, and increasingly around the globe, tells a different story. It tells us a self-evident tale of realized technological prowess and obvious wealth creation, and it tells a story of abundance on earth. This is gloriously and humbly embodied in the very cell phone you are probably using to read these words and the internet that enables it all. 

Today we are reaching debt-enabled abundance not with a financial crash, as the Cassandras would have it, but with financial fire-works.  Witness bitcoin, stocks, art, real estate: Everything and anything is a store of value.  We see bubbles everywhere.  It’s all froth: all-time highs all the time. The FED created QE and saw that it was good. The little secret psychological ingredient is that Inflation is considered bad when it applies to milk and eggs and iPhones, toilet paper, and TVs. Still, when it applies to financial markets… woohoo, it’s a party!   

Prices of financial assets go up, the prices of real-world goods stay flat, and everyone rejoices. In fact, we don’t even call that inflation: we call it a bull market. And it is the bull market we have known for the past 50 years.  There is a direct causal relationship between QE-infinity and the current bull markets during Covid, between the money supply and the financial markets. 

Anyone still stuck in the dutiful micro-analysis of stocks and bemoaning PE ratios entirely misses the macro monetary picture. 

Witness the inflows of hot money and draw a parallel to a Pamplona bull run in the financial markets. It’s not just one bull; it’s a whole group of them, roaming the streets to the rejoicement of the revelers.  Witness stonks, GME, cryptos, Bitcoin, high-end art, NFTs, or even meme-stocks like Tesla.

All these have P/E ratios that are either infinite or close to infinite (>100s for TSLA). In fact, zero earnings are preferred: it means the price can be anything for there is no anchor, and this is the 0:Infinity paradox of these purely digital financial assets. 


On exponential asset inflation as economic stimulus 


Discounted cash flow analysis is impossible to do where there are no cash flows to discount and analyze, by definition.  So the price of assets is anything we say it is, specifically whatever someone said it was a second ago in the exchanges.  Wash trading aside, the crypto markets are showing real liquidity at a Trillion dollar valuation. The price is purely based on supply and demand, a market fundamentalist dream: It is also potentially infinite. 

The price of digital financial assets then is sky-rocketing exponentially as monetary demand intensifies with the expansion of the money supply. On the supply side, numerus-clausus digital assets, those infinite supply (bitcoin/ethereum), have exploded in value through covid-19.  After a short 10 years in existence, Bitcoin reigns supreme as the most efficient mechanism to store and grow value ever in humankind’s financial history. 

There is today, on the demand side, and for the foreseeable future, more liquidity in the FIAT banking system than the banking system itself is designed to hold. Hot excess liquidity is continuously spilling over, hitting every asset class; that is the real ‘stimulus’ part. This will result in a numerical increase in the value of the instruments and is the very definition of financial asset inflation. We are in exponential asset bubbles everywhere. 

This asset inflation feels and is very different from the 70s price/wage inflation variant. More importantly, its psychology works in reverse, the current variant being mostly pleasant. During most of the 20th century, inflation left you poorer as a saver; it felt bad. This modern 21st-century version does the opposite: it increases your savings (if you have them), and you feel richer—end of story. QE-induced asset appreciation is in full bloom.  


Cryptos as the way forward


The world is now turning to digital financial bubbles to absorb this ever-increasing digital liquidity—cue in crypto-currencies as the ideal digital store of value. As Bitcoin was first termed, open-source money provides a way out by the top on the receiving end of the liquidity: everything will bubble up. Bitcoin has reached a $1 Trillion valuation in less than 10 years and is just getting started. Gold parity is at $16 Trillion or $1M per BTC (BTC is $50k at the time of writing).

BTC is increasingly used as a reserve currency to park and grow excess liquidity. Individuals and corporations alike are using BTC (and ETH) as reserve currencies. Sovereigns will soon follow, and some have started already. 

Central banks are now experimenting with full digital emission of their FIAT currencies.  These CBDCs (Central Bank Digital Currencies) are completely different from Bitcoin. They are meant to be emitted in dilution, just like the dollar is. They are meant as means of payment. The role of a store of value and the means of payments have officially been separated in the modern crypto age. Like the dollar or stable coins, Fiat money is a great means of payment but a poor store of value.

Bitcoin is the reverse: no one really uses it for payments, but it is a superior (albeit volatile) store of value.  Cryptocurrencies are open source databases and are decentralized in their ownership. Their emission is algorithmic and non-discretionary: this is one of their big selling points.

By contrast, CBDCs belong to the state emitting them (even if the code itself is open source). The state should and must retain discretion on the emission: this makes QE such a powerful tool. Programs like the PPP in the US to shore up businesses during Covid would not be possible without it. The technology underlying the future means of payment are the stable-coins then. 

China is leading the charge with its CBDC, ‘the digital yuan,’ with large-scale technical deployments underway by the Bank of China. The US is not far behind in implementation, if not somewhat ahead in intent, with its QE-infinity programs, of which “The Stimulus Check” is the latest welcome incarnation.  Purely digital currencies will accelerate QE.

Already China is implementing its Silk Road via their own QE, much like the US implemented the Marshall plan post-WWII. QE and CBDCs are a match made in heaven. Bitcoin is at the end of the emission: absorbing surplus. 


The end of debt money is NIR


The liquidity flood will find places to go; it always does, by definition of liquidity and flood.  Money is Increasingly parked outside the banking system, which is in NIR, for Negative Interest Rate territory. The banking system will soon charge you for the privilege of holding your money: that is NIR. All that liquidity is seeking stores of value outside the banking system and will spill over. That is what NIR does to savings: it moves them out of the banking system and FIAT. 

MMT has been the West’s secret doctrine ever since the end of Bretton Wood (FIAT) and the Volker-Reagan era in the US.  Today, some 50 years later, and in a nod to Minsky, the end of the ‘50 year debt cycle’ is indeed NIR.  The end of Breton Woods birthed FIAT money and its logical conclusion, MMT, birthed Bitcoin.

Bitcoin was a reaction to QE-1 in 08. Today MMT’s QE-infinity is supercharging the value of BTC and spurring cryptos as superior stores of value at the causal end of the liquidity chain.  Cryptos are here to stay and are just getting started.  They will inflate away with the money supply. They may yet one day become the money supply themselves. In-fine, and ironically, MMT is the reason for both the birth and the continued success of Bitcoin.


Dr. StrangeLoveMoney or how to stop worrying about QE and learn to love Bitcoin


Cryptos and the Bitcoin/Ethereum pair, in particular, shine as global stores of value.  Investing in cryptos is a generational wealth play that is a lot more accessible, convenient, and more intuitive than investing in, say, gold. All you need is a cellphone. If real-estate and stocks were the boomer’s patient path to wealth, millennials have embraced cryptos as their instant path to riches. 

Many participants bank in the cloud and are financially independent crypto-nomads, working remotely. As an investment, BTC has outshined every other asset class by several orders of magnitude. And then ETH has outperformed BTC at that game. And then these two and many others (particularly including NFTs in the arts and sports) are just getting started. 

You can try and fight the FED, but you will lose.  You can lose yourself in the Keynesian vs. Austrian dialectics, but you will miss the point. Bitcoin transcends these false dichotomies. You can choose to ignore cryptos, but you will miss out on the fun, not to mention the returns.  You can rant all you want about the “end of debt being near,” and you would accidentally be right in the NIR sense. 

Is this the jubilee predicted in the Bible?!  Evidently, except that, in a funny twist, the end doesn’t look like the Old Testament dystopian nightmare some still predict. Quite the opposite: it looks like a dream. Monetary capitalism will go out with a bang and financial fireworks. It will signify and reflect the material presence of abundance on Earth. Mind your visions, your fears, and desires, for they have ways of becoming a reality. 


Immanentizing the eschaton: on abundance on Earth and the future role of money 


The future is bright, for the biblical debt-Jubilee is NIR. Such is the will of God (and the FED), and you should not fight either at their game. It is in bad taste to fight God, poor (literally poor) judgment to fight the FED, and they will put you through financial and literal hell. All you have to do is nothing: don’t fight it, allow it.  

We are collectively transitioning from scarcity to abundance, from industrial debt capitalism to modern monetary capitalism. From work money to free money. From slavery to freedom. Slavery, or wage-slavery, seems to be giving way to individual freedom and self-realization: a mass illuminism. The UBI individual is freely pursuing goals other than “be a slave for your food’. 

Money enslaved you, so the money will set you free: forget work money and embrace free money. Riding a bike, meditating, making music and art, learning a language, traveling, developing science or video games, making love, or even literally flying a kite all seem like better uses of our time than slaving away at some 9-5 for sustenance. The earth and our collective psyches will thank us too. 

As a species, we are fulfilling the promises of the prophets: we are “immanentizing the eschaton” of both political theory and theology. We are bringing about paradise on earth for an increasingly large number of humans. Cryptos are but the visible tip of the spear: a means to an end. Cryptos, Bitcoin, and CBDCs will bring about the end of ‘slave money’ and usher in the era of ‘free money. Free: as in free beer and in free-d’homme. 

In abundance, we will collectively rejoice. 

Finally Free.