Don't Listen To What They Say; Look At What They Do

Good Morning Everyone,

“Don't Listen To What They Say; Look At What They Do”

I first heard this heuristic from Nassim Taleb and it refers to the fact that words are cheap. There is far more signal in peoples actions than in their words. Simply put people can say whatever they like. And they do. People talk all kinds of bs with little concern for accountability. Especially with the pace of informational transmission with the internet and social media, the news cycle is so fast these days, that the attention of most people is in an absolute tsunami of content and most things are forgotten as quickly as they came.

Markets topped back in November 2021 as the Federal Reserve narrative pivoted and began to posture that they would cease increasing the money supply - something they like to refer to as “easing” - to fight inflation - the exact inflation that they caused as a result of increasing the money supply and not letting people leave their homes to go to work. Funny that. Who could have possibly guessed that such insane measures would trigger an economic disaster?!

This coincided with markets adopting a risk-off posture. While selling in the short term was clearly the move, I want to postulate why i think listening to what the fed says is far less valuable compared with paying attention to what they’re actually doing.

It’s important first off to understand the feds fundamental position. They have something in the vicinity of $9T in assets, and now in excess of $30T in debt. So they have a debt to asset ratio of around 70%. In other words for every 1 unit of assets, they have 3 units of debt.

They’re deep in the red obviously. But in the fiat system this is the case for most users that are considered “rich”. They’re up to their eyeballs in debt. The difference for the fed compared with the average user in the fiat network, is that the fed can just arbitrarily increase the money supply, and essentially print away their debt, or at least the value of the currency and thus enable to them to pay for their debt with newly printed US shitcoins.

Since the 2008 financial crisis, it has been pretty clear that this is what they’re going to do. The chart below shows M1 which consists of currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions (amongst other things). The chart speaks for itself.

So while the fed are saying they’re going to tighten and increase rates, and markets have reacted accordingly by selling aggressively since November, they have actually only increased rates so far by 25 basis points (0.25%), and 50 basis points (0.50%).

Most of what the fed does is political theatre. They’re in between a rock and a hard place, whereby they have so much debt, that they cannot increase rates in a significant and sustained way over time, as they have too much debt to service. But they have to pretend that they care about inflation, as it starts to hit families and enters the overton window within the media and the political landscape. But the reality is they want inflation. Infact they need it. The only way they’re ever going to service their debt is through currency debasement. Just like the UK did before them with the british pound, and the dutch did with the guilder before the brits.

This story has been told before throughout history. Even back to the roman empire it is clear that the wheels fell off once they began to devalue to denarius.

So in the short term they can raise rates a little and pretend like they care about inflation. But i believe the fed is extremely limited as to the extent to which these actions can be sustained. Especially when you consider the level of household debt, and the fact that the vast majority of people have little to no savings. There will likely be some "extraordinary” catalyst that will be blamed as to why we must get back to printing and increasing the money supply. Maybe it’ll be Putin, maybe another pandemic. Who knows.

But they have talked the talk. Now we will have to wait to see the extent to which they can actually act, and walk the walk.

Meanwhile… 1 bitcoin = 1 bitcoin.

If your unit of account is sats. You’re sitting pretty in the most powerful and pristine monetary good to ever exist. Don’t get tricked into worrying about the fluctuations relative to melting usd ice cubes. It’s simply an opportunity to accumulate. One currency is going to be printed into oblivion, despite what they might say, and the other can never be changed.

Hope you have a great day. I’ll talk to you all tomorrow.

AK

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit unlocked.substack.com