The News Block #23 (02/06/2024)
Powell Says US on an Unsustainable Path, Investors Sound the Alarm on Commercial Real Estate, EIA Declares Bitcoin Mining an “Emergency,” Pro-Bitcoin President Bukele Wins Re-Election
Listen to the latest episode of the News Block below. 👇
Powell Describes U.S. Fiscal Situation as “Unsustainable”:
By now, you’ve probably seen some of the viral clips of Fed Chairman Jerome Powell’s appearance on CBS’s 60 Minutes.
In one of the most climactic parts of the talk, Powell was questioned about the U.S. national debt recently crossing $34 trillion. Typically, it’s a “no-no” for a Fed Chairman to comment on the state of fiscal policy, but Powell didn’t hold back when he expressed his worry on the subject. Give it a listen.👇
The House Budget Committee appears worried just like Powell because it recently published an article titled “Sounding the Alarm” and cited the Congressional Budget Office’s projection that the national debt is expected to grow to a massive $144 trillion over the next 30 years, which is equivalent to $1 million per household.
To call this a problem is an understatement.
Once debt levels get this high, there are only a few options that governments have at their disposal to address the issue:
1.) Cut spending and entitlements. That doesn’t seem to be happening. In fact, government spending is expected to increase this year, not decrease.
2.) Outright default on the debt, which is not really an option at all. This would be catastrophic given that US Treasuries underlie the entire debt-based monetary system today.
3.) Inflate their way out of this debt problem through currency debasement. In my mind, this is the most likely path the government will take.
By printing money and debasing the currency, the government’s future debt payments become cheaper for them because the money is worth less than when the government originally borrowed it. This is good for highly indebted governments, it adversely affects everyday people whose savings are also devalued and have to suffer from higher rates of inflation.
This is likely why you heard Powell in the interview mention that the Fed is no longer planning on inflation returning back to its 2% target before it cuts interest rates. But of course the worry is an interest rate cut too soon could re-ignite inflation.
My favorite part of the interview was when Powell was asked about the single most important factor for the future of American prosperity. His answer was the following:
Here’s what I heard him say — since World War II we have been the global reserve currency. We are the world’s money printer. We even convinced nations around the world to accept our debt as pristine collateral, and we don’t want to lose that position. I would have pressed him exactly on that.
I think a better answer would have been, “America should embrace a new form of money that can’t be debased, like Bitcoin, so that Americans can protect themselves against reckless politicians and inflationary policies and can finally save for their futures.”
Maybe then, we could finally get our country back on a more sustainable path.
Investors Sounding the Alarm on Commerical Real Estate:
One industry that is no doubt happy to hear that the Fed is planning to cut rates is commercial real estate. This sector has been hit particularly hard by higher interest rates as well as the rise of recent trends like work-from-home that have impacted vacancy rates.
Some have described the commercial real estate sector as a “ticking time bomb” for the economy given how much valuations have fallen over the last couple of years.
Billionaire investor Barry Sternlicht recently made waves in an interview when he described the office real estate market as an “existential crisis” and that there are over a trillion dollars worth of losses “spread somewhere.”👇
But we actually do know where a lot of these losses are sitting — on the balance sheets of smaller regional banks. Dr. E.J. Antoni shared the chart below that shows how commercial real estate loans account for nearly 30% of regional bank loans.
The likely outcome of all of this was echoed by Jerome Powell in the 60 Minutes interview when he said that some smaller banks will likely be forced to close due to their exposure to commercial real estate. This will just continue the trend I talked about on my podcast of consolidation in the banking industry, where the too-big-to-fail banks just get bigger.
In 1984, there were 17,811 FDIC-insured financial institutions. In 2021, that number has shrunk to 4,897.
This highlights the long-term consequences that easy monetary policies have on asset prices, competition, and financial stability. Because interest rates were kept artificially low for over a decade, banks were giving out loans like candy, and commercial real estate valuation soared to astronomical levels as more and more money chased these scarce assets.
With interest rates at decade-highs, this massive bubble is now at risk of popping and could potentially cause another banking crisis in the process.
With each crisis, the banking system becomes more vulnerable and even more centralized. As a result, the risks become more concentrated in these too-big-to-fail banks. If and when another crisis ensues, this increases the probability that the crisis could become disastrous, which could force authorities to come in and perform another bailout to “save” the entire system.
Just like the fiscal situation, this is unsustainable, and is just another reason to hold some of your net worth in a new monetary asset that functions outside the banking system.
EIA Announces “Emergency Survey” on Bitcoin Miners:
Now, despite Bitcoin enabling people to “be their own bank” and protecting them from future bank crises that are increasingly becoming more likely, the government is still questioning whether the energy consumption of Bitcoin is worth it.
Last week, the Energy Information Administration (EIA) announced that it would perform an "emergency survey” on US cryptocurrency miners to investigate their electricity usage.
The EIA argued that this is indeed an emergency because miners threaten the stability of the electrical grid, and the recent price increase of Bitcoin will only incentivize more mining activity and thus, more energy consumption.
A lot of people reacted to this on X saying that this action is not only an encroachment on the privacy of these businesses, but it’s also clearly discriminatory against an industry due to the sheer amount of information this mandatory survey is asking these miners to provide.
Some might be reading this and are asking themselves, “Why is reporting energy consumption so bad? Well, here’s just some of the information this survey is asking miners to provide: how they mine, what they mine, how they get their electricity, all their energy partners, the models of their miners, and all the geographic coordinates of their mining operations.
Others pointed to how ridiculous it was for the EIA to declare this an “emergency” considering that 1.) Bitcoin miners consume maybe 1% of total US power consumption, 2.) Bitcoiner miners are incentivized to find underutilized, cheap sources of energy, and 3.) There have been numerous instances when miners have been proven to help stabilize the grid, not harm it.
This survey just shows how much more education is needed to help these authorities understand all the positive benefits that Bitcoin mining can bring to the electrical grid and the energy industry as a whole.
Pro-Bitcoin El Salvador President Bukele Wins Re-Election:
Many Bitcoiners around the world cheered this week when pro-Bitcoin El Salvador President Nayib Bukele was elected to a second term in a landslide victory on Sunday.
Bukele won with an impressive 87% of the votes - could you imagine if we had an election with those kinds of results here in the US?
Check out this excerpt from a WSJ article that highlights how impressive Bukele’s victory was.
The Bitcon-friendly leader is well-liked in El Salvador, maintaining an approval rating of 75% for his entire presidency, the highest ever for an El Salvadoran president.
And for good reason! Since he has taken office, El Salvador has seen its national image revitalized as crime has dropped significantly, and the country has embraced new technologies to revitalize its economy. One of those technologies, of course, is Bitcoin.
There are still a lot of challenges ahead - but it goes to show the progress that can be made when a country radically changes course and decides to pave a new monetary ath for its citizens. Although Bukele is just one politician in a small Latin American country, he’s serving as an example to the rest of the world on what happens when a leader embraces Bitcoin instead of attacking it.
Until next week, keep stacking.
- N₿
If you enjoyed reading this post, you should consider subscribing to the News Block.
I write this simple, insightful market update once a week that’s designed to be read in 10 minutes or less — roughly the time it takes to mine a Bitcoin block.
The News Block is powered by Bitdeer Technologies Group, a publicly-traded leader in Bitcoin mining that stands alone as the only vertically-integrated, technology-focused Bitcoin mining company.
Make sure to listen to some of my latest Coin Stories episodes, including recent interviews with Morgen Rochard, Preston Pysh, and Hester Peirce.
Listen on iTunes: Click here
Listen on Spotify: Click here
Listen on YouTube: Click here
Listen on Fountain and Earn BTC: Click here
NEW: Bitcoin Financial & Estate Planning with Morgen Rochard: Long-Term Savings, Trusts and Retirement
Morgen Rochard manages Origin Wealth Advisers LLC, a fee-only, registered investment advisory firm. She is also a Bitcoin financial consultant at her firm, Money Owners LLC. Morgen is the author of the "Personal Financial Quickstart Guide" and a co-host of the "Bitcoin for Advisors" podcast.
Coin Stories Promotional Links and Discounts
Bitcoin 2024 by Bitcoin Magazine - is July 25-27 in Nashville! Get your early bird pass at a steep discount and use code “HODL” for 10% off.
CoinKite - is your go-to tech company for top-notch Bitcoin self-custody solutions, including the popular ColdCard wallet. Get 5% off using my link.
CrowdHealth - offers the Bitcoin community alternative to health insurance. I now spend just ~$100 a month on my health care. Sign up using my link.
Unchained Capital - buy Bitcoin and secure it through multisig collaborative custody today. Sign up using my link.