As evidence rises that the “everything bubble” will shortly burst, Bitcoin’s monetary competitiveness is flailing.
Today, the FRED Equity-Related Economic Uncertainty Index hit its sixth-highest level ever, as risk asset liquidity continues to dry up. Spikes in this index are usually accompanied by substantial drawdowns in the S&P 500 Index.
Investment-grade bonds virtually ceased to exist as inflation reached 40-year highs in the United States (as well as high readings throughout the rest of the world), with nominal yields considerably below the inflation rate and no provision for credit (default) risk.
For decades, the Federal Reserve Board’s role as “lender of last resort” for the US dollar (the USD functioning as the world reserve currency) has served as a volatility-suppression plan.
Financial markets learned that the Fed would save the day by bailing out credit markets and keeping the easy money flowing, starting with Alan Greenspan and the “Greenspan put” (after to be known as the Fed put). With the Fed’s fund rate still at zero lower bound in 2022, the Fed has become a political liability, and it is caught off guard when it tries to tighten at a time when liquidity in financial markets is dwindling.
The consequences of the latest credit market sell-off were examined in The Daily Dive #142:
“Better financing costs in the broader economy are a result of decreasing debt prices, as a forty-year high in the consumer price index, along with a little hawkish Federal Reserve Board, has lenders looking for higher yields.”
“What should be watched in the future is how credit markets trade, as this has a direct impact on stock markets, both in terms of business finance and market valuation.”
“This is something we’ll be keeping a careful eye on in the coming months as we approach a possible Fed rate hike cycle.”
The monetary premium that has wedged itself into global bond and even equity markets despite the everything bubble, we have continued to highlight in The Deep Dive, is bitcoin’s monetary rivalry.
THE BUBBLE OF EVERYTHING
In The Deep Dive, we continue to use the term “Everything Bubble” to describe the current situation of the international monetary system, but what exactly do we mean?
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.
