Bitcoin 2023: Pozsar Says "No" to BTC and more

Authored by Goldfix, ZH Edit

Last week Zoltan Pozsar was interviewed by Arthur Hayes at the Bitcoin 2023 Event.  Bitcoin Magazine did a write up on it which we read. Here is a topical breakdown of that conversation. The full 27 minute interview can also be found here

On Dedollarization

Summary:

Less dollars will be used in commodity trade. Therefore less dollars need to be held. Given the world has no other good asset to substitute for US Treasuries yet, Treasuries will still be what is held by the other CBs. The main difference is, when they get paid dividends, they will immediately swap the dollars for currencies they actually use for trade. This means dollars are left orphaned floating out there lowering their value not being held closely by the banks anymore

Forward Guidance:

They are thinking that beyond YCC the Fed can change rules governing deposit creation for Banks handling Treasuries and give the orphaned dollars a counterbalancing need to be held. This is all to mitigate a more aggressive debasement of USD buying power if needed. The US will have to buy its own bonds one way or another.

Note: Pozsar goes into Perry Mehrling’s 4 prices of money concept here.2 More on that at bottom and in The Four Prices of Money

On Bitcoin

Summary:

Throughout history all money has either been Public (State created) or a Public/Private partnership. Bitcoin, while it has been adopted by a couple nations, is not controlled by those nations. FX reserve managers may put a % of their reserves in BTC like Gold at some point . While both gold and Bitcoin are trustless. Bitcoin is the product of a private anonymous enterprise. Pozsar also made it clear he does not own any Bitcoin, at least yet.

Forward Guidance:

The entirety of Bitcoin’s construct is private. If there is a problem with the money itself, the State has no control over it and thus they have no recourse to mitigate the problem. Outsourcing something core to your country’s existence is dangerous. Anything with moving parts not created by and operated by the State is a risk to the State. Which is why they are creating their own CBDC. To borrow a phrase: Government's are saying, not our keys, not our coins. Of course this is also an excuse to increase societal control and they will do that. Why? Because Bitcoin’s existence alone threatens State existence. States can only do two things people cannot: one of them is print money. Bitcoin succeeding is an existential threat to nation state monetary control. 

On QE Restarting

Hayes: Do you think the behavior of Gold and BTC are ‘seeing through’ these BTFP funding programs as highly inflationary?

Pozsar: Yes… (head nodding)

Summary:

These Fed vehicles just created to rescue banks’ nonperforming assets have the same effect as QE/YCC despite their technical differences. These facilities tamp down longer term rates much in the same way as YCC does though not as obviously. We are in the “anteroom” for the next QE. By keeping bad loans from hitting the free market’s Yield Curve they force money seeking proper yield to go elsewhere. This is inflationary.

GoldFix from April 1st, The Bank Bailout is YCC

By lending to banks at face value for bonds/securities underwater by 30 to 60%, you remove the necessity for the banks to liquidate said securities in an open market to raise cash. Doing so removes upward pressure on interest rates that would by necessity occur from a fire-sale of these securities. You keep rates down.

Forward Guidance:

Financial Repression is when you use tools to skew issuance of treasuries towards the front end of the curve while keeping longer term yields low artificially. This migrates to the dollar itself and buying power gets killed. “There are many tell-tale signs here, you know…” of financial repression and YCC getting ready to happen. Meanwhile, as long as short term rates keep climbing, problems will continue to bubble up.

Also discussed:

1. Banking Crisis
2. Food/Energy Will Make Fed Keep Hiking
3. BRICS vs G7 on CBDC Use
4. 2023 rate cut potential

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