Peter Thiel, the co-founder of PayPal and Palantir, told the tens of thousands attending Bitcoin 2022 in Miami that central banks are bankrupt.
“Bitcoin is always the most honest market in the world, it’s the most efficient market, and it’s the canary in the coal mine,” Thiel said before adding:
“It was telling us that the inflation was coming. In the last two years, it went from $5-6,000 up by a factor of 10x.
It is telling us that the central banks are bankrupt. That we are at the end of the fiat money regime. And that’s sort of what it has priced in.
I think the central bankers, Mr Powell, people like that, should be extremley grateful to bitcoin because it’s the last warning they’re going to get.
They’ve chosen to ignore it. They will have to pay the consequences for that in the years ahead.”
Inflation in Lebanon has reached 219%. “The state is bankrupt, as is the central bank, so we have a problem,” Lebanon’s Deputy Prime Minister Saade Chami said.
In Turkey inflation has crossed 61% while in USA it has risen to 7.9% in February.
Argentina is in galloping inflation with Brazil too now seeing a rise just above 10% after a long period of tranquility even while their neighbor Venezuela collapsed into hyperinflation.
“As the sole issuer of euro-denominated central bank money, the Eurosystem will always be able to generate additional liquidity as needed,” the chair of the European Central bank, Christine Lagarde, said in the midst of mass printing in November 2020 before adding:
“So, by the definition, [the central bank] will neither go bankrupt nor run out of money. In addition to that, any financial losses, should they occur, would not impair our ability to seek and maintain price stability.”
Inflation in the euro zone has reached 7.5% in March, up from 5.9% in February. This was a conscious decision however by Mr Powell to target an inflation rate above 2% “for some time.”
The United States’ central bank is now tightening and at some speed by raising interest rates and by withdrawing Fed demand for both government and corporate bonds.
This may cause a recession, but, higher interest rates means more profitability for commercial bank lending, and so standards may be reduced for both mortgages and loans. Something that can in practice translate to more money ‘printing’ by the commercial sector, depending on demand.
The velocity of money moreover has seen only a slight increase of 1% from 1.112 in Q3 2021 to 1.122 in Q4 2021, the latest data.
So the current rise of inflation is not due to more money moving, but due to there simply being more money, in addition to supply chain issues as China goes back to lockdown again.
If that inflation gets out of hand, then the central bank technically would still not be bankrupt, but practically they very much would be because their unit of account would no longer act as a store of value, and thus would no longer quite meet the definition of money.
The United States or Europe are not quite at that stage however, but gas, oil and gold have been rising to reflect a re-adjustment in the value of fiat unit of accounts, with the big question being how can governments afford higher interest rates when they could barely cover the interest even at near 0%.
The United Kingdom spends more on just interest on their debt than on their entire army. The United States will probably also head towards $1 trillion on interest payments on their debt by the end of the year if Powell does not go beyond 2% interest rates.
At the same time, the capital borrowed will keep rising, with the rate of borrowing increasing faster than the economy. Something that is in theory the definition of insolvency.
The only way out of it is growth, which requires reforms especially where capital investment is concerned to boost innovation, but there’s very slow movement in such direction, if indeed any.
