Federal Reserve Created Bitcoin and Other Percolating Bubbles - Michael Carino, Greenwich Endeavors

Greenwich Endeavors's picture

The Federal Reserve’s tools for achieving its dual mandate
of low inflation and full employment manipulate interest rates and therefore
markets.  This manipulation of rates reverberates
globally. Their manipulation historically had been more light handed and
invisible to most of the public.  However, over the last decade, their impact on
interest rates and yield levels have been the most dramatic in the history of
the Federal Reserve. 

Whenever you have policies that are extreme, it is best to
stay at extremes for the shortest time possible.  Newly employed policies always have unknown
and unexplored side effects that can prove to be harmful and detrimental.  For instance, pharmaceutical companies have a
long testing period before new products can be offered to the public.  But monetary policy works with impunity towards
negative consequences.  No accountability
and the subterfuge of finding other scape goats encourage testing these extremes.

During economic downturns, the Federal Reserve experiences
pressure from politicians and the public to act in whatever manner necessary.  Pressure to adequately address what are normal
and healthy corrections in long business cycles is smothering and the Federal
Reserve members oblige.  But obliging
over the past decade without reverting policy back to normal has created unprecedented
low levels of interest rates and trillions in bonds on the Fed’s balance sheet,
flooding the banking system with an unhealthy amount of funds.

The Federal Reserve has arguably achieved its dual mandate years
ago.  The employment situation has been
healthy and healed for years and now is considered historically as tight as
this country has ever experienced.  This
will lead to scarcity of labor in certain sectors going forward.  Businesses will be confronted with higher
labor costs competing for limited resources or relocating to areas with more
abundant labor.

But what about inflation?  The Fed’s preferred gauge of inflation seems
to be running at or slightly below their targeted level of 2%.  Sounds like they have hit their target even
though they have pursued the most aggressive monetary policy in the worlds
history.  Shouldn’t we have runaway
inflation with such easy central bank policies?

Unfortunately, we do. 
Inflation is, simply put, out of control.  If the Fed took their inflation blinders off
and included asset prices into their inflation statistics, the negative
ramification of their policies would be apparent.  Fed policies have led to hyper- inflation and
parabolic moves higher in certain financial asset classes.  Inflation in goods and services consumed can
be difficult for the public.  But this
type of inflation does not lead to systemic issues putting the economy at risk
of a severe downturn.  However, the
financial asset inflation Fed policy has created, but turns a blind eye to, is
dangerous and destructive and can take years to remedy. 

One asset class that typically shows Fed induced asset
inflation is in housing.   In 2006, easy
Fed policy lead to rapid inflation in this asset class and contributed to the
protracted downturn and systemic issues of 2008 and beyond.  Current Fed policy is producing gains in
housing two to three times the rate of preferred Fed calculated inflation.  History sure does rhyme if not repeat.

Housing is a more visible asset class that is easy to see asset
inflation - or bubble like conditions - as they happen.   Another
asset class that has seen significant asset inflation and bubble like conditions
are crypto-currencies such as Bitcoin. 
Bitcoin has had meteoric appreciation of around 1,500% this year.  Fed policy of taking all interest away from
savers for such a protracted period has made alternate stores of value that
also pay no interest a viable alternate currency.  Had the Fed not changed the system of fiat
currency that encourages holders by providing a level of interest that is
greater than the loss of purchasing power, such alternate currencies would not
be making headlines.  Worse, now that
they have been receiving such media attention, people are investing and using
these currencies without realizing, like the tulip mania, the crypto store of
value may just be a fad with nothing to show once the fad runs its course.  At the end of tulip mania, fortunes were
ruined, but the gardens still had pretty flowers to console.  I hope a Bitcoin screensaver will console as
well when its store of value disappears.

How many other crypto-currency like bubbles are percolating
under the system?  How much asset
inflation have we experienced since the Fed unleashed the easiest monetary
conditions upon us?  Questions, that when
answered, will leave many with losses and economic difficulties.  Is it worth turning a blind eye to the asset
inflation byproduct of Fed policy because it is not measured in preferred inflation
metrics?  Some say ignorance is bliss.  Is it?


by Michael Carino, Greenwich Endeavors, 12/7/17


Michael Carino is the CEO of Greenwich Endeavors and has
been a fund manager and owner for more than 20 years.  He has positions that benefit from a
normalized bond market and higher yields.  

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thurstjo63's picture

It is hilarious these wall street investment types who are utterly clueless types who make predictions on cryptocurrencies. But yet the suspend all logical thought when it comes to fiat currencies!?! Go figure!

snodgrass's picture

Horseshit. The unemployment rate is anywhere between 23 and 30 percent and inflation is 10 percent.

opport.knocks's picture

Regarding the "Fed Created Bitcoin" part, that had occurred to me as well. What if it is just a Fed monetary tightenng mechanism for removing excess liquidity? 

... and it's gone.

Ajax-1's picture

I find your theory/analysis to be interesting and thought provoking. Undoubtedly, "investing" in crypto currency would certainly act as a pressure release valve on a boiling pot of excess liquidity, it was an afterthought by the western central banks. It is no secret that the Federal Reserve and the other western central banks have fantasized about a universal digital crypto currency. It is also undeniable that the blockchain is the future. However, there are numerous crypto currencies competing for dominance. I would venture to speculate that many of these to include Bitcoin were conceived, implemented, nurtured and financed by the western central banks. Of which, they are using them as competing "test model pilot programs" to ascertain which one has the fewest problems.

ejmoosa's picture

One Coin to Rule Them All...

Ajax-1's picture

Yep, +100. A global and universal digital crypto currency. It has long been a dream of the Anti-Christ globalists. It's a brave new world..... proceed with caution.

HowdyDoody's picture

Who has access to massive computing power, high speed networks and cheap energy?

The NASA 'data storage facility' in Utah and the banksters with the HFT gear. Would they miss the chance to cash in by mining the odd one or two million coins?

Could ordinary mortals or commercial outfits compete?

Yellow_Snow's picture

Truly laughable...


pitz's picture

Is Amazon (no earnings), or the various other ad-supported companies that make up the contemporary "tech sector" really any different?  They produce nothing of value.  Their cash flows are largely based on passing money between themselves, not collecting it from customers.  Bitcoin can be thought of as a stock that has a P/E of 0, ie: it neither creates nor destroys capital.  By such a definition, Amazon and a whole wide swath of tech companies are significantly worse than Bitcoin.

Unreasonably loose credit is allowing such schemes to run along unabated.  Once monetary policy tightens, many of these schemes will collapse.

kwaremont's picture

well, these wet dreams of true marxists about mythical communism (or at least end of capitalism) are getting real - no profits, no value (no real valuation other than hype), no money (as trust in fiat scam "currencies" wanes under the megabrutal indebtness of their issuers), no state (reality for megacorps, megarich, incl NewEvil GOOLAGs and AssBooks - but with no money, there's no state), and as Stalin would add: no people, no problems (end of civilization, no productive people, just third world crimmigrants overpopulation on social welfare rocketeering system)

opport.knocks's picture

A P/E of infinity is more accurate x/0= ∞

Global Douche's picture

Very laughable article. I consider the source from someone deeply indebted to the BOND market. When that implodes as I fully expect, you'll see a wealth transfer to behold! For now, Bitcoin and related cryptos are only the violins and cellos hitting those harsh notes before the shower curtain gets slung to the side and the screams with the bloodbath beginning.

voting machine's picture

I guess you  can't count the 95,000,000 Americans who left the work force

because they couldn't find work.

Unemployment problem solved

Just don't count them...


truthordare's picture

When a CEO of a hedge fund management company starts to lecture me on cryptography, I get all glassy eyed and start grinning.

VWAndy's picture

 All them monopolies? Yea buddy them too.

ultraticum's picture

Find out how Bitcoin works (forget about price), then re-post your mainstream "Greenwich" money-jobber analysis.

ebworthen's picture

The everything bubble.

Crypto-currencies will be allowed to run until TPTB decide to crush it and rake more chips off the green felt.

daveO's picture

Futures trading means the banks are going ride it hard, up and down. They're gonna squeeze all the hopium they can out of the plebs.

Sabibaby's picture

Banks don't matter anymore. They're becoming obsolete, money can cross borders and change hands without them don't you see what's going on here? This is a wealth transfer never before seen on Earth.

jin187's picture

This is why I own nothing of value but guns and real estate. You can always steal food and water, and everything from crypto coins to gold coins becomes worthless under the right circumstances. The ability to hang your hat somewhere, and kill anything that moves from a distance never depreciates.

Ajax-1's picture

You make a compelling agrument. However, I hope that a portion of your real estate holdings includes a sustainable and defendable location of acreage. 

DjangoCat's picture

Hope you are prepared to shoot the tax collector when they decide to bankrupt you in order to pay off their unpayable debt.

ThePhantom's picture

sounds like the stock market in '08? '17.. ? just make a 10x smaller bet.. you'll be fine. joe blow lawn mower guy has 1000$ in the bank, he can: .... let it sit there or.... put it in bitcoin... with roughly (and easily) 100% return every month for the last year. what to do?

Agstacker's picture

Until another Mt Gox steals it from joe blow.

DjangoCat's picture

The crooks are out in force, and I would bet a number of them are bankster sponsored false flag artists too.

jin187's picture

What happens when the off-shore exchange Joe Blow was using goes *poof* with a billion dollars of BTC, and no one even knows the real name of the people running it?

DjangoCat's picture

Reminder to those who have not been listening.

Take your assets off the exchange as soon as you have done your business.

UmbilicalMosqueSweeper's picture

The point is, never leave money in the bank...(((THEY))) will steal it bit by bit.

MonetaryApostate's picture

Horseshit, they've been printing many trillions of currency notes/marks  globally every year for hundreds of years to steal everything we have created or bought, & bitcoin will by no means save anyone from their long arm of greed.  A reckoning is coming SOON!

Fake money, fake debt, fake value, fake news, fake investments, fake markets, fake history, fake leaders, fake events, fake elections, fake foods, fake medicines, yes fake everything!  https://plus.google.com/collection/QorNbB

DjangoCat's picture

These days, even fake gold bullion.  Where do you turn?

ToSoft4Truth's picture

Pay off all the fake debt one may have. 


Reduce your monthly nut to a couple utility bills and home owners insurance, if a collapse comes you won't notice.